Question

A newly independent Eastern European nation wants to adopt a floating exchange rate system in order to restore monetary control to its government. Using the monetary autonomy argument, how do this country's ministers justify establishing this system? Trade deficits are determined by the balance between savings and investment in a country, not by the external value of its currency. Unpredictability of exchange rate movements makes business planning difficult. Speculation in exchange rates dampens the growth of international trade and investment. Each country should be allowed to choose its own inflation rate. Variable exchange rates are more receptive to a trade balance.

Answer 1

Each country should be allowed and given the possibility to set its own inflation rate.

Step-by-step explanation:

The monetary autonomy argument states that a country's central bank should be free to influence its own money supply and internal economic conditions, and therefore a fixed exchange rate should be ineffectual and inefficient.

The proponents said that each country should be entitled to set its own inflation rate. Therefore, Each country should be given the free will to chose and decide its own inflation rate.