Question: Your study partner asks you, "If central banks lose the ability to use discretionary monetary policy under fixed exchange rates, why would nations agree to a fixed exchange rate system?" How do you respond?
2. Suppose the United States and Japan are the only two trading countries in the world. What will happen to the value of the U.S. dollar if the following occur, other things equal?
a. Japan relaxes some of its import restrictions.
b. The United States imposes some import tariffs on Japanese goods.
c. Interest rates in the United States rise dramatically.
d. A report indicates that Japanese cars last much longer than previously thought, especially compared with American cars.