Under perfect capital mobility,monetary policy has the largest impact on the income under:

Question

Quizplus · Accepted Answer

Under perfect capital mobility, monetary policy has the largest impact on income under floating exchange rates because exchange rates are determined by market forces and can freely adjust in response to changes in monetary policy. In contrast, under fixed exchange rates, the monetary authority needs to intervene in the foreign exchange market to maintain the fixed parity, which limits the impact of monetary policy on the economy. Dollarization and currency unions also limit the ability of monetary policy to affect the economy as they involve the use of a foreign currency or a common currency, respectively.

Under Perfect Capital Mobility,monetary Policy Has the Largest Impact on the Income