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Explain the so-called impossible trinity (also known as open economy trilemma). Using the diagram, discuss the...

Explain the so-called impossible trinity (also known as open economy trilemma). Using the diagram, discuss the policy alternatives of the monetary authority under different scenarios.

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Answer #1

Trinity Dilemma or Impossible Trinity

Trinity Dilemma is a theory related to economy which gives 3 options to countries to choose in case of their international monetory policies and agreements. The three options are

1.Fixed foreign exchange rate

2.Free capital movement

3.Independent monetory policy

Impossible trinity or Trinity Dilemma means no country could choose all these options at a time.

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