(Solution) - Canada had a flexible exchange rate from 1933 to 1939 -(2025 Original AI-Free Solution)

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Canada had a flexible exchange rate from 1933 to 1939, 1950 to 1962, and has maintained one since 1970. A flexible exchange rate regime insulates the domestic economy from external shocks and permits the operation of an independent national monetary policy. Canada?s experience led to a better understanding of the impact of monetary and fiscal policies in an open economy with a high degree of capital mobility and provided evidence to support the case for a flexible rate as a viable alternative to a fixed exchange rate.
a. Explain the difference between the flexible exchange rate policy that Canada pioneered and a fixed exchange rate policy.
b. Explain the advantages of a flexible exchange rate policy over a fixed exchange rate policy.
c. If a fixed exchange rate does not influence competitiveness in the long run, why might a country adopt this policy?