Monetary policy is most effective at home when exchange rates are flexible.

Question

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When exchange rates are flexible, the value of a country's currency can adjust to changes in its economy and monetary policy. This means that if a central bank implements expansionary monetary policy, such as lowering interest rates, it can lead to a decrease in the value of the currency, which can make exports more competitive and stimulate economic growth. On the other hand, when exchange rates are fixed, monetary policy can be less effective, as changes in interest rates may not lead to corresponding changes in the exchange rate.

Monetary Policy Is Most Effective at Home When Exchange Rates