The ________ the economy and ________ exchange rates increase the effectiveness of both expansionary and contractionary monetary policies.

Question

Quizplus · Accepted Answer

The openness of an economy refers to the degree to which it engages in international trade and financial transactions. A more open economy, with higher levels of trade and financial flows, tends to have more responsive exchange rates to changes in monetary policy. This means that both expansionary and contractionary monetary policies are more effective in influencing economic activity. However, the flexibility of exchange rates also plays a role in this effectiveness. Flexible exchange rates allow market forces to adjust exchange rates in response to changes in monetary policy, which can enhance the effectiveness of those policies. Therefore, the best choice is C, which identifies the importance of both the openness of the economy and the flexibility of exchange rates in increasing the effectiveness of monetary policy.

The ________ the Economy and ________ Exchange Rates Increase the Effectiveness

The the Economy and Exchange Rates Increase the Effectiveness