Monetary policy to stabilize the nation is less desirable whenever:
A) the nation is a net external debtor with liabilities denominated in foreign currency.
B) the nation is a net external creditor with assets denominated in foreign currency.
C) the central bank of the nation must also finance government deficits.
D) the government is unable to raise taxes sufficiently to lower its deficit.

Question

Quizplus · Accepted Answer

When a nation is a net external debtor with liabilities denominated in foreign currency, using monetary policy to stabilize the economy could lead to a decrease in the value of the nation's currency. This would increase the cost of servicing the foreign debt, potentially leading to default and further economic instability.

Monetary Policy to Stabilize the Nation Is Less Desirable Whenever