Assume we are operating under the Bretton Woods system. The British pound is pegged at US $3.50. Which of the following would NOT occur if the British pound depreciates to US $3.395?

Assume we are operating under the Bretton Woods system. The British pound is pegged at US $3.50. Which of the following would NOT occur if the British pound depreciates to US $3.395?

Assume we are operating under the Bretton Woods system. The British pound is pegged at US $3.50. Which of the following would NOT occur if the British pound depreciates to US $3.395?




A. The British government could sell gold to buy pounds
B. The British government could sell U.S. dollar reserves to buy pounds
C. The British government could implement policies to increase the international demand for pounds
D. The British government could do nothing as long as the pound remains within 5% of the peg


Answer: D. The British government could do nothing as long as the pound remains within 5% of the peg


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