Under fixed rates, which one of the following statements is the MOST accurate?
A) Monetary policy can affect only output.
B) Monetary policy can affect only employment.
C) Monetary policy can affect only international reserves.
D) Monetary policy can not affect international reserves.
E) Monetary policy can only affect money supply.

Question

Quizplus · Accepted Answer

Under fixed exchange rate systems, monetary policy actions by a country's central bank can directly affect its international reserves. When a country buys or sells its currency to maintain its fixed exchange rate, it results in a change in its international reserves. Other options like affecting only output, employment, or money supply are not as directly influenced by monetary policy under a fixed exchange rate system as international reserves are.

Under Fixed Rates, Which One of the Following Statements Is