The open economy trilemma is that:
A) fiscal policies, monetary policies, and direct controls cannot manage all macroeconomic problems.
B) a fixed exchange rate, unrestricted capital flows, and monetary independence cannot all be achieved at the same time.
C) unrestricted capital flows cannot be achieved when fiscal and monetary policies are being implemented.
D) monetary shocks, real shocks, and supply shocks all disturb long run macroeconomic equilibrium.

Question

Quizplus · Accepted Answer

The open economy trilemma states that a country cannot simultaneously achieve all three of the following: a fixed exchange rate, unrestricted capital flows, and monetary independence. This means that a country must choose two out of the three, and sacrificing one may have consequences for the other two.

The Open Economy Trilemma Is That