If central banks were no longer obliged to intervene in currency markets to fix exchange rates, governments would be able to use monetary policy to reach
A) internal balance.
B) external balance.
C) internal and external balance.
D) internal but not external balance.
E) external but not internal balance.

Question

Quizplus · Accepted Answer

When central banks are not required to intervene in currency markets to maintain fixed exchange rates, governments gain flexibility in using monetary policy to target both internal balance (such as employment and inflation) and external balance (such as the trade balance and exchange rates). This is because they can adjust interest rates and control the money supply without worrying about maintaining a fixed exchange rate, allowing them to address both domestic and international economic objectives.

If Central Banks Were No Longer Obliged to Intervene in Currency