If an economy wants to maintain monetary policy autonomy, then:
A) it can maintain a fixed exchange rate and international capital mobility.
B) it can impose strict capital controls and maintain a fixed exchange rate.
C) it can maintain capital mobility but not a fixed exchange rate.
D) it can impose strict capital controls and maintain a fixed exchange rate or it can maintain capital mobility but not a fixed exchange rate.

Question

Quizplus · Accepted Answer

An economy can maintain monetary policy autonomy by either imposing strict capital controls and maintaining a fixed exchange rate or by allowing capital mobility and having a flexible exchange rate. This is based on the "impossible trinity" or "trilemma" in international economics, which states that it is impossible to have all three: a fixed foreign exchange rate, free capital movement, and an independent monetary policy.

If an Economy Wants to Maintain Monetary Policy Autonomy, Then