In the monetary small open-economy model with a fixed exchange rate, the domestic

Question

Quizplus · Accepted Answer

In a fixed exchange rate regime, the exchange rate is fixed at a predetermined level by the government or central bank, which limits their ability to control the domestic stock of money. As a result, the central bank loses control over the domestic stock of money, since the money supply is determined by the balance of payments and capital flows. Therefore, choice (B) is the correct option.

In the Monetary Small Open-Economy Model with a Fixed Exchange