If capital flows freely between countries and a country has a fixed exchange rate, one thing you know is that the country:
A) exports more than it imports.
B) must have ample gold reserves.
C) cannot have a discretionary monetary policy.
D) must be running large trade deficits

Question

Quizplus · Accepted Answer

If capital flows freely and a country has a fixed exchange rate, the country cannot have a discretionary monetary policy. This means that the country must align its monetary policy with the country or countries to which it has fixed its exchange rate.

If Capital Flows Freely Between Countries and a Country Has