All else equal, relative to the case of a closed economy, monetary policy is ______ effective in an open economy with a ______ exchange rate.
A) more; fixed
B) more; flexible
C) less; fixed
D) less; flexible

Question

Quizplus · Accepted Answer

In an open economy with a flexible exchange rate, monetary policy is more effective because changes in interest rates can lead to exchange rate adjustments, which amplify the effects of monetary policy on the economy.

All Else Equal, Relative to the Case of a Closed