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    Question

    Which of the following statements are correct about

    trilemma in monetary policy A. It is related to closed economy model. B. It involves exchange rate, capital mobility and monetary policy. C. It arises because perfect capital mobility aligns the domestic interest rate to the world interest rate. D. Flexible exchange rate is not compatible with independent monetary policy. E. It is related to capital immobility and flexible exchange rate. Choose the correct answer from the option given below :
    A B and C only Correct Answer Incorrect Answer
    B C and D only Correct Answer Incorrect Answer
    C A and D only Correct Answer Incorrect Answer
    D B and E only Correct Answer Incorrect Answer

    Solution

    Trilemma in monetary policy arises because perfect capital mobility aligns the domestic interest rate to the world interest rate and Flexible exchange rate is not compatible with independent monetary policy.

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