1) In May 1971, the German Central Bank purchased billions of U.S. dollars in order to prevent the mark from revaluating (rising) relative to the dollar. This action contributed to the overall 'imported inflation problem'. Why didn't the Bundesbank (the German Central Bank) sterilize this inflow of dollars? A Sterilization was not allowed under the Bretton Woods system. It is inconsistent with a foxed exchange rate B. Sterilization requires a lot of US. dollars; the Bundesbank did not have enough in its asset position at this point in time to sterilize. C. Sterilization only works under a floating exchange rate system and it will affect the German Mark only if it alters the risk premium. D. Sterilization would require an open market sale of German Assets by the Bundesbank, and the Home Asset position of the central bank was insufficient to sterilize, when compared with the amount of dollars it needed to purchase in defending the dollar. E. Sterilization would require an open market purchase of German Assets by the Bundesbank, and the Home Asset position of the central bank was insufficient to sterilize, when compared with the amount of dollars it needed to purchase in defending the dollar. F. Nobody thought of it at the time.

2) Under a gold standard, a country experiencing a severe current account deficit could see the situation reversed (or improved) if countries followed "the rules of the game." However, countries did not always follow the rules. This is because A. It was easier to allow the price.-specie flow mechanism to work B. The central banks of countries with excessive current account surpluses would often perform an open market purchase of domestic assets. The countries with current account deficit would then have to sharply raise their domestic interest rates in order to correct the current account imbalance C. The central banks of countries with excessive current account surpluses would often perform an open market sale of domestic assets. The countries with current account deficits would then have to sharply raise their domestic interest rates in order to correct the current account imbalance D. The central banks of countries with excessive current account surpluses would often perform an open market sale of domestic assets. The countries with current account deficits would then have to sharply decrease their domestic interest rates in order to con ect the current account imbalance and maintain d constant exchange rale.