Hey All,
Everybody's pretty much talked this one to death, but I got asked by PM to take on one particular issue, so I'll just run through all the answer choices, while I'm here.
Although the coordination of monetary policy can help facilitate the orderly financing of existing imbalances,
it is unlikely that its effect on their size is significant in the absence of an appropriate fiscal adjustment.
(A) it is unlikely that its effect on their size is significant
PROBLEM: The use of "it" here twice to mean two different things is grammatically unfeasible. The first "it" has no referent (That's the "it" we use to start out clauses, such as "It's crazy how much fire there is in here."), and the second refers to "the coordination..."
(B) it is unlikely that the size of their effect would be significant
PROBLEM: We want to imply the effect on the size of imbalances, not the size of the effect.
(C) affecting their sizes are not likely to be significant
PROBLEM: The subject of "are" here is...what? Maybe "affecting"...doesn't make any sense.
(D) the significance of their effect on its size is unlikely
PROBLEM: We don't mean the significance is unlikely, but that it's unlikely to be significant.
(E) its effect on their size is not likely to be significant
ANSWER: Isn't it pretty? Like in ALL the answer choices, the "its" refers to "the coordination...".
Hope that helps!
-t