Question

At the end of the Bretton Woods system, what combination of policies would have maintained the...

At the end of the Bretton Woods system, what combination of policies would have maintained the system?

a) expansionary monetary policy in the US and expansionary policy abroad

b) expansionary monetary policy in the US and contractionary policy abroad

c) contractionary monetary policy in the US and expansionary policy abroad

d) contractionary monetary policy in the US and contractionary policy abroad

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Answer #1

Option c

contractionary monetary policy in the US and expansionary policy abroad

At the end of the Bretton Woods system, contractionary monetary policy in the US and expansionary policy abroad would have maintained the system. The Bretton Woods system came into effect after the 1944 Bretton Wood agreement. According to this system, each member country was to tye its currency to gold and keep its external exchange rate within 1 percent. After the Vietnam war prices escalated in the US and the domestic inflation became very high and it became difficult to maintain the fixed exchange rates.

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