Monetary policy is more powerful than fiscal policy under ________ exchange rates due to the amplifying effect from changes in interest rates to exchange rates to ________.

Question

Quizplus · Accepted Answer

Under flexible exchange rates, monetary policy is more powerful due to the amplifying effect from changes in interest rates to exchange rates, which then affect net exports. When a country's central bank changes interest rates, it directly influences the exchange rate, which in turn affects the competitiveness of the country's goods abroad, thereby impacting net exports.

Monetary Policy Is More Powerful Than Fiscal Policy Under ________