If a country maintains a fixed exchange rate by intervening in the foreign exchange market with no other actions by the central bank then it does not have a _____ policy.
A) expansionary fiscal
B) automatic fiscal
C) discretionary monetary
D) exchange rate
E) discretionary fiscal

Question

Quizplus · Accepted Answer

By maintaining a fixed exchange rate solely through foreign exchange market interventions, the central bank effectively relinquishes control over its domestic monetary policy. This is because it must adjust its monetary base to maintain the fixed exchange rate, leaving it unable to independently pursue discretionary monetary policy actions such as adjusting interest rates or conducting open market operations to influence the economy.

If a Country Maintains a Fixed Exchange Rate by Intervening