What is destabilizing speculation? What role did it play in the collapse of the Bretton Woods system?
What will be an ideal response?
Destabilizing speculation refers to actions by investors that make it more difficult to maintain a fixed exchange rate. Destabilizing speculation in 1971 against the German mark led to the collapse of the Bretton Woods System. Investors became convinced in early 1971 that Germany would have to allow a revaluation of the mark against the dollar. Investors increased their demand for marks, which increased the shortage of marks. The West German government finally opted out of the fixed exchange-rate system and allowed the mark to float against the dollar.
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U.S. residents come to believe that the dollar will appreciate in the future, that is, the exchange rate in the future will be higher than the current exchange rate. As a result
A) the demand curve for dollars shifts rightward. B) the demand curve for dollars shifts leftward. C) there is a movement downward along the demand curve for dollars. D) None of the above answers are correct.
Costs that spill over to third parties are called
A) opportunity costs. B) external costs. C) variable costs. D) public costs.