Suppose that country A with a flexible exchange rate undertakes expansionary monetary Policy. Especially if short-term funds are extremely mobile between countries, A's Currency will tend to __________ because of this policy, and this result suggests that A's Monetary policy will be __________ effective in influencing national income than if A Had a fixed exchange rate rather than a flexible exchange rate.

Question

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Under expansionary monetary policy, a country with a flexible exchange rate system will see its currency depreciate because interest rates will fall, making investments in that country less attractive and leading to capital outflows. This depreciation makes the country's exports cheaper and imports more expensive, potentially boosting domestic economic activity. Therefore, monetary policy is more effective under a flexible exchange rate system than it would be under a fixed exchange rate system, where the central bank must intervene to maintain the exchange rate, limiting its ability to use monetary policy to influence national income.

Suppose That Country a with a Flexible Exchange Rate Undertakes