Recall the policy trilemma: That is, policymakers can only achieve two of the following three objectives at any one time:
(a) a fixed exchange rate to promote international trade,
(b) international capital mobility to achieve consumption smoothing and insure risk through international borrowing and lending, and
(c) discretionary monetary policy to stabilize domestic output.
Consider the following three exchange rate regimes: the classical gold standard, the Bretton Woods System, and the post-Bretton Woods non-system of floating exchange rates. Explain how each of these incarnations of the international financial system fits into the policy trilemma framework outlined above. In particular, which policy objective was subordinated to make each system work? How does your answer help us think about why both the gold standard and the Bretton Woods system eventually failed?