Exchange rate stabilization policies tend to
A) prevent money neutrality from holding.
B) suffer from the same negative side effects as interest rate stabilization policies.
C) cause fiscal policy to become nonneutral.
D) all of the above.
E) none of the above.

Question

Quizplus · Accepted Answer

Exchange rate stabilization policies can prevent money neutrality from holding, as they involve interventions in the currency markets that affect the money supply. They can also have similar negative side effects as interest rate stabilization policies, such as distorting market signals and potentially leading to imbalances. Additionally, these policies can cause fiscal policy to become nonneutral because they can affect government budget positions through changes in interest payments on debt and influence on economic activity.

Exchange Rate Stabilization Policies Tend to