Under _____ exchange rates, monetary policy is powerful in its effects on internal balance. This conclusion holds _____.
A)fixed; only with perfect capital mobility
B)floating; only with low capital mobility
C)fixed; with all degrees of capital mobility.
D)floating; with all degrees of capital mobility.

Question

Quizplus · Accepted Answer

Under floating exchange rates, monetary policy is powerful in its effects on internal balance regardless of the degree of capital mobility. This is because under floating exchange rates, the exchange rate adjusts to changes in monetary policy, which in turn affects the prices of goods and services, output, and employment. This is in contrast to fixed exchange rates, where the exchange rate is fixed and monetary policy cannot directly affect the exchange rate.

Under _____ Exchange Rates, Monetary Policy Is Powerful in Its