Why Is Monetary Policy More Effective in an Open Economy

question 68

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.

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Definitions:

Copper

A reddish-brown, malleable, ductile metallic element with high electrical and thermal conductivity, used in a variety of alloys and in electrical wiring.

Symbol Co

The symbol Co stands for cobalt, which is a chemical element with atomic number 27, known for its magnetic properties and used in alloys and batteries.

Cobalt

A chemical element with the symbol Co and atomic number 27, known for its metallic properties and use in alloys and battery production.

Elemental Symbol

An elemental symbol is a one or two-letter notation derived from the element's name, used to represent an element in the periodic table (e.g., H for hydrogen, O for oxygen).