If we consider a situation of expansionary monetary policy under flexible exchange rates, the monetary expansion will lead to __________ of the home currency and thus will be __________ effective in increasing national income than under fixed exchange rates.

Question

Quizplus · Accepted Answer

Expansionary monetary policy under flexible exchange rates typically leads to a depreciation of the home currency, which makes exports cheaper and imports more expensive, thereby increasing net exports and national income. This mechanism is generally more effective under flexible exchange rates because the exchange rate can adjust freely to reflect changes in monetary policy.

If We Consider a Situation of Expansionary Monetary Policy Under