Question

The financial policy trilemma says that

	a) An economy can maintain floating exchange rates, free capital mobility, and an independent monetary authority at the same time.
	b)An economy can maintain fixed exchange rates, free capital mobility, and an independent monetary authority at the same time.
	c) An economy can maintain floating exchange rates, low capital mobility, and an independent monetary authority at the same time.
	d) An economy cannot maintain fixed exchange rates, low capital mobility, and an independent monetary authority at the same time
	(a) and (c)

Answer 1

When making fundamental decisions about managing international monetary policy, a trilemma suggests that countries have three possible options from which to choose. According to the Mundell-Fleming trilemma model, these options include:

1. Setting a fixed currency exchange rate
2. Allowing capital to flow freely with no fixed currency exchange rate agreement
3. Autonomous monetary policy

The technicalities of each option conflict because of mutual exclusivity. Hence only two policies can be achievable at a same time , not all three.

Hence ( D ) part is a correct answer