When money can move freely across borders,policy makers must choose between
A)exchange-rate stability and an economic growth.
B)exchange-rate stability and inflation.
C)exchange-rate stability and an independent monetary policy.
D)exchange-rate stability and capital controls.

Question

Quizplus · Accepted Answer

If money can move freely across borders, exchange-rate stability and an independent monetary policy are the best choices. Capital controls restrict the flow of money across borders, which can hinder economic growth. Choosing exchange-rate stability and inflation can result in a sacrifice of economic growth, as inflation can be used to stimulate the economy. However, an independent monetary policy allows policy makers to adjust interest rates and monetary policy to suit the needs of the economy without being tied to exchange-rate stability.

When Money Can Move Freely Across Borders,policy Makers Must Choose