The thesis of those who favor flexi

The thesis of those who favor flexible ex￾change rates is that the community in question is not willing to accept varia￾tions in its real income through adjustments in its money wage rate or price level, but that it is willing to accept virtually the same changes in its real income through variations in the rate of exchange. In other words it is assumed that unions bargain for a money rather than a real wage, and adjust their wage demands to changes in the cost of living, if at all, only if the cost￾of-living index excludes imports. Now as the currency area grows smaller and the proportion of imports in total consumption grows, this assumption becomes increasingly unlikely.