In an open economy with flexible exchange rates, monetary policy affects consumption and investment by changing the ________ and affects net exports by changing the ________.
A)inflation rate; unemployment rate
B)exchange rate; real interest rate
C)growth of domestic real GDP; growth of foreign real GDP
D)real interest rate; exchange rate

Question

Quizplus · Accepted Answer

Monetary policy affects consumption and investment by changing the real interest rate. Additionally, monetary policy affects net exports by affecting the amount of money in foreign exchange markets, which affects the exchange rate.

In an Open Economy with Flexible Exchange Rates, Monetary Policy