Under fixed exchange rates,
A) Monetary policy is not an effective policy.
B) Fiscal policy is not an effective policy.
C) Monetary policy and fiscal policy are not effective.
D) Both monetary and fiscal policies are effective.
E) Monetary policy has an unpredictable effect on the domestic money supply.

Question

Quizplus · Accepted Answer

Under fixed exchange rates, the exchange rate is predetermined and cannot be changed by the central bank. As a result, monetary policy cannot be used to influence the exchange rate, and its effectiveness is limited. Fiscal policy may have some impact, but it is also constrained by the fixed exchange rate regime.

Under Fixed Exchange Rates