Monetary policy under a fixed exchange rate regime will be:
A)more effective than fiscal policy.
B)more powerful with high capital mobility than with low capital mobility.
C)likely to cause large and persistent deficits.
D)constrained and relatively ineffective.

Question

Quizplus · Accepted Answer

Monetary policy under a fixed exchange rate regime is constrained and relatively ineffective because the exchange rate is fixed and cannot be adjusted to respond to changes in monetary policy, limiting the ability of the central bank to control inflation, interest rates, and the money supply.

Monetary Policy Under a Fixed Exchange Rate Regime Will Be