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Generate QuizThe 'Impossible Trinity' (or Mundell-Fleming Trilemma) posits that a country cannot simultaneously achieve which three macroeconomic policy goals?
- Low inflation, full employment, and balanced trade
- Free capital mobility, a fixed exchange rate, and an independent monetary policy
- Fiscal discipline, high economic growth, and zero national debt
- Financial inclusion, digital payments, and currency convertibility
Answer: Free capital mobility, a fixed exchange rate, and an independent monetary policy
The trilemma dictates that a nation must choose only two of the three policies. For instance, if a country allows free capital flows and pegs its currency (fixed exchange rate), it loses the ability to set its own interest rates (independent monetary policy) because rates must align with the anchor currency to prevent massive capital flight or arbitrage.