Answer to Question #62653 in Macroeconomics for Asca

Question

Mark correct statements about monetary policy in the Mundell-Fleming model with fully mobile capital.(several answers possible)
(a) Monetary policy is not effective in fixed exchange rate regimes because of the need of sterilization of monetary interventions.
(b) Monetary policy is not effective in fixed exchange rate regimes because of the limited reaction of foreign investment.
(c) Monetary policy is effective in the flexible exchange rate regime because money supply can be determined exogenously.
(d) The effectiveness of monetary policy is not limited by the liquidity trap.

Answer 1

a, c