Under fixed exchange rates, when is monetary policy inconsistent with both internal and external balance?
A) When the economy has unemployment and a current account deficit
B) When the economy has unemployment and a current account surplus
C) When the economy has inflation and a current account deficit
D) When the economy has both inflation and high unemployment
E) When the economy has both high inflation and high unemployment

Question

Quizplus · Accepted Answer

Under fixed exchange rates, monetary policy is inconsistent with both internal and external balance when there is unemployment (internal imbalance) and a current account deficit (external imbalance), as monetary policy cannot simultaneously address both issues effectively.

Under Fixed Exchange Rates, When Is Monetary Policy Inconsistent with Both