Monetary policy has a greater impact in an open economy than it does in a closed economy.

Question

Quizplus · Accepted Answer

In an open economy, there is a greater reliance on international trade and capital flows, which can be influenced by changes in monetary policy. Changes in the interest rates or money supply can affect the exchange rate, which in turn can affect exports, imports, and capital inflows/outflows. In a closed economy, there is less reliance on international trade and capital flows, so changes in monetary policy may have less impact on the overall economy.

Monetary Policy Has a Greater Impact in an Open Economy