A Nominal Anchor Is a Commitment to Keep Nominal Variables

question 39

Multiple Choice

A nominal anchor is a commitment to keep nominal variables within limits, often tied to an external value or price. When nations do not incorporate such discipline into their monetary policy, exchange rates are often:

• A) irrelevant to economic activity.
• B) extremely volatile, because traders consider monetary shocks to be permanent.
• C) less dependent on monetary variables.
• D) determined by political considerations rather than economic fundamentals.

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