Given an open economy with high capital mobility, monetary policy is strengthened under fixed exchange rates.

Question

Quizplus · Accepted Answer

Under fixed exchange rates, the exchange rate is fixed and the central bank cannot use monetary policy to influence it. This limits the effectiveness of monetary policy and can lead to economic imbalances. In a high capital mobility environment, capital flows can also undermine the effectiveness of monetary policy, further reducing its strength. Therefore, monetary policy is not strengthened under fixed exchange rates in an open economy with high capital mobility.

Given an Open Economy with High Capital Mobility, Monetary Policy