The Impossible Trinity (or Trilemma) in international economics states that a country cannot simultaneously achieve all three of the following goals: a fixed exchange rate, independent monetary policy, and free capital movement (capital account openness). A country must choose to forgo one of these goals. For example, a country can have a fixed exchange rate and free capital movement, but it will lose the ability to conduct an independent monetary policy (as monetary policy must be used to maintain the exchange rate).
Which of the following statements is correct? 'Impossible Trinity' disallows the simultaneous achievement of
Asked in WBCS Main Paper 5 2022 · Topic: Money & Banking (Monetary Policy: Objectives, Instruments (quantitative and qualitative), and Transmission Mechanism)
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Answer: B. fixed exchange rate, monetary independence and capital account opening.
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