2 Floating fixed exchange rates In a system of floating exchange rates,e is allowed to fluctuate in response to changing economic conditions. In contrast,under fixed exchange rates,the central bank trades domestic for foreign currency at a predetermined price(trades A for B用A换B). We now consider fiscal,monetary,and trade policy: first in a floating exchange rate system,then in a fixed exchange rate system. CHAPTER 12 Aggregate Demand in the Open Economy slide 9 slide 9 § In a system of floating exchange rates, e is allowed to fluctuate in response to changing economic conditions. § In contrast, under fixed exchange rates, the central bank trades domestic for foreign currency at a predetermined price (trades A for B 用A换B). § We now consider fiscal, monetary, and trade policy: first in a floating exchange rate system, then in a fixed exchange rate system. 2