The "impossible trinity" refers to the idea that it is impossible for a country to simultaneously have:
A) low inflation, low unemployment, and a rapid rate of GDP growth.
B) free capital flows, a fixed exchange rate, and an independent monetary policy.
C) high interest rates, a budget deficit, and a trade deficit.
D) an expansionary fiscal policy, a contractionary monetary policy, and a flexible exchange rate.

Question

Quizplus · Accepted Answer

The impossible trinity, also known as the "trilemma," states that a country cannot simultaneously have free capital flows, a fixed exchange rate, and an independent monetary policy. If a country wants to maintain a fixed exchange rate, it must give up control over its monetary policy to prevent capital outflows. On the other hand, if a country wants to maintain control over its monetary policy and have free capital flows, it must allow its exchange rate to float. Therefore, it is impossible for a country to have all three at the same time.

The "Impossible Trinity" Refers to the Idea That It Is