In theory, business cycles are __________ likely to be transmitted from one country to another under a system of fixed exchange rates than under a system of flexible exchange rates. It is also a generally-accepted theoretical result by economists that monetary policy is __________ useful for dampening business cycle activity under a system of fixed exchange rates than under a system of flexible exchange rates.
A) more; more
B) more; less
C) less; more
D) less; less

Question

Quizplus · Accepted Answer

Business cycles are more likely to be transmitted from one country to another under a system of fixed exchange rates because countries cannot adjust their exchange rates to buffer against external economic shocks. Additionally, monetary policy is less useful for dampening business cycle activity under a system of fixed exchange rates because the central bank's ability to adjust interest rates is constrained by the need to maintain the fixed exchange rate.

In Theory, Business Cycles Are __________ Likely to Be Transmitted