Given an open economy with high capital mobility and floating exchange rates, suppose an expansionary monetary policy is implemented to combat recession.The initial and secondary effects of the policy have conflicting effects on aggregate demand, thus weakening the policy's expansionary effect.

Question

Quizplus · Accepted Answer

In an open economy with high capital mobility and floating exchange rates, an expansionary monetary policy typically leads to currency depreciation, boosting net exports and reinforcing the policy's expansionary effect on aggregate demand.

Given an Open Economy with High Capital Mobility and Floating