If an economy has a trade policy of a fixed exchange rate, then its monetary and fiscal policies are:
A)independent of the trade policy.
B)independent of the trade regime.
C)less restricted when dealing with domestic goals.
D)more restricted when dealing with domestic goals.

Question

Quizplus · Accepted Answer

With a fixed exchange rate, the country must maintain exchange rate stability, which often requires using monetary policy tools to adjust the money supply and interest rates in line with the fixed exchange rate goal. This restricts the government's ability to use monetary and fiscal policies freely for domestic objectives, as these policies must also consider the impact on the exchange rate.

If an Economy Has a Trade Policy of a Fixed