Which of the following statements regarding monetary policy is true?
A)Monetary policy is ineffective if a country has a fixed exchange rate.
B)Monetary policy is more effective if a country has a fixed exchange rate rather than a flexible exchange rate.
C)Monetary policy is equally effective whether a country has a fixed or a flexible exchange rate.
D)Monetary policy is very effective if a country has a fixed exchange rate in times of a recession but not during an inflationary boom.

Question

Quizplus · Accepted Answer

If a country has a fixed exchange rate, its central bank does not have control over its monetary policy because it cannot adjust its interest rates or money supply to influence the economy without affecting the exchange rate. As a result, monetary policy becomes ineffective in such situations.

Which of the Following Statements Regarding Monetary Policy Is True