What is the trilemma in open economy macroeconomics?
The trilemma is an economic theory, which posits that countries may choose from three options when making fundamental decisions about their international monetary policy agreements. Today, most countries favor free flow of capital and autonomous monetary policy.
What is the policy trilemma?
The policy trilemma refers to the trade-offs a government faces when deciding international monetary policy. In particular, the policy trilemma contends that it is not possible to have all three objectives at the same time, but has to choose two from the following three options: Independent (autonomous) monetary policy.
What is macro economic monetary policy?
Definition: Monetary policy is the macroeconomic policy laid down by the central bank. It involves management of money supply and interest rate and is the demand side economic policy used by the government of a country to achieve macroeconomic objectives like inflation, consumption, growth and liquidity.
What is independent monetary policy?
Monetary policy independence is often identified with the freedom to set policy rates independently of those of other countries. whether a country adopts a pegged or non-pegged exchange rate, he does not show how long-term interest rate sensitivities for non-pegging countries affect the volatility of the exchange rate.
What is the policy trilemma and why are countries restricted to one side of the triangle?
The policy trilemma, also known as the impossible or inconsistent trinity, says a country must choose between free capital mobility, exchange-rate management and monetary autonomy (the three corners of the triangle in the diagram). Only two of the three are possible.
What is true regarding the the policy trilemma also called the impossible trinity?
A fundamental contribution of the Mundell-Fleming framework is the impossible trinity, or the Trilemma. The Trilemma states that a country may simultaneously choose any two, but not all of the following three policy goals – monetary independence, exchange rate stability and financial integration.
What is trilemma in international finance?
The so-called trilemma of international finance maintains that a country cannot simultaneously peg an exchange rate, maintain an independent monetary policy, and permit free cross-border financial flows.
Which policy is included in macroeconomic policy?
The three main types of government macroeconomic policies are fiscal policy, monetary policy and supply-side policies. Other government policies including industrial, competition and environmental policies. Price controls, exercised by government, also affect private sector producers.
What is the Mundell-Fleming trilemma How relevant is the trilemma in the context of the financial architecture of today?
What are the components of the trilemma that is encountered when a country chooses its monetary policy and what is the meaning of the term?
5) What are the components of the trilemma that is encountered when a country chooses its monetary policy and what is the meaning of the term? Answer: The components are (1) exchange rates, (2) domestic goals, and (3) international capital movements.
What are the micro economic policies?
There are a range of policy measures which are specifically microeconomic in nature that is they concentrate on particular industries and products. These include subsidies, indirect taxes, competition policy, price controls, environmental policies and regulation.