Multiple Choice
Why is monetary policy more effective in an open economy than in a closed economy?
A) Trade deficits affect exchange rates, which can offset adverse interest rate effects.
B) Borrowers can choose to use foreign capital, so that interest rate effects are stronger than expected.
C) Interest rate changes affect exchange rates, so that capital flows reinforce the effect of monetary policy.
D) Banks can choose to lend to foreigners, so that interest rate effects are essentially nullified.
Correct Answer:
Verified
Correct Answer:
Verified
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