When is monetary policy least effective?
A)With fixed exchange rates.
B)With a gold parity exchange rate.
C)With flexible exchange rates.
D)With a managed exchange rate.

Question

Quizplus · Accepted Answer

When there are fixed exchange rates, the central bank cannot use monetary policy to influence the exchange rate. This is because the exchange rate is fixed to a certain value, which means that the central bank cannot change it through interest rate adjustments or other monetary policy measures. Therefore, monetary policy is least effective under fixed exchange rate regimes.

When Is Monetary Policy Least Effective