All else equal, compared to the case of a closed economy, monetary policy is ________ effective in an open economy with a ________ exchange rate.
A)more; fixed
B)more; flexible
C)less; real
D)less; nominal

Question

Quizplus · Accepted Answer

Monetary policy in an open economy gets transmitted to other countries whereas in a closed economy it does not. With flexible exchange rates, domestic monetary policy makers have the freedom to pursue domestic objectives. With fixed exchange rates, the monetary policy makers have to concern themselves with maintaining established exchange rates.

All Else Equal, Compared to the Case of a Closed