How did the Bretton Woods system operate? What caused its collapse? Some think the current system of managed but floating rates is too unstable. What would generate the instability?© BrainMass Inc. brainmass.com October 25, 2018, 9:37 am ad1c9bdddf
The simple explanation how the Bretton Woods system operated is the leading free-market economies agree to fix their exchange rates to the US dollar, which was based on a fixed exchange rate between the US dollar and gold. So, anyone could exchange dollars for gold at a fixed rate. This gave much needed stability to Europe and Japan to recover from the 2nd world war.
The collapse came when the first Arab embargo caused the price of oil (priced in US dollars) to jump and thus causing inflation in the US in 1971. Because of the fear of inflation, many around the world wanted to exchange their dollars for gold. The US gold reserves could not keep up and President Nixon ended the ...
The solution discusses how the world currency system has changed from Bretton Woods to the current system. In addition, issues surrounding the stability and the instability of the world's currency exchange rate system and the pros and cons are mentioned.
Assistance Needed -75 words each
1.What is foreign aid and what is the goal of foreign aid? Does foreign aid promote economic development? Explain briefly.
2.Why can't all the balance of payments accounts be in surplus? What factors determine the demand for British pounds in foreign exchange markets? How are exchange rates determined under a flexible exchange rate system?
3.Describe developing countries and how they differ from industrial market economies. How can international trade aid development? In what ways does the international economy impose problems on developing countries
4.How can two countries both be better off as a result of trade? How can tariffs protect U.S. jobs? Do tariffs lead to a net increase in jobs? Explain. Who are the winners and losers from trade restrictions? Given that trade restrictions impose losses on an economy, why are trade restrictions so common.
5.How did the Bretton Woods system operate? What caused its collapse? Some think the current system of managed but floating rates is too unstable. What would generate the instability?