Under a fixed exchange rate system and freely flowing capital:
A) monetary policy is ineffective.
B) fiscal policy is ineffective.
C) monetary policy is very effective.
D) the supply of money is very important.
E) the demand for money will fall.

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system with freely flowing capital, monetary policy is ineffective because any attempt to change the money supply will be offset by capital flows that maintain the fixed exchange rate.

Under a Fixed Exchange Rate System and Freely Flowing Capital