Given an open economy with high capital mobility and floating exchange rates,suppose an expansionary monetary policy is implemented to combat recession.The initial and secondary effects of the policy
A) cause aggregate demand to increase,thus strengthening the policy's expansionary effect on real output
B) cause aggregate demand to decrease,thus eliminating the policy's expansionary effect on real output
C) have conflicting effects on aggregate demand,thus weakening the policy's expansionary effect on real output
D) have conflicting effects on aggregate demand,thus strengthening the policy's expansionary effect on real output

Question

Quizplus · Accepted Answer

An expansionary monetary policy lowers interest rates, leading to increased investment and consumption, which raises aggregate demand and strengthens the policy's expansionary effect on real output.

Given an Open Economy with High Capital Mobility and Floating