What Is the Main Reason Why Monetary Policy Has a Stronger

question 46

Multiple Choice

What is the main reason why monetary policy has a stronger effect in an open economy than in a closed economy?

• A) Changes in the price level affect net exports.
• B) Changes in the price level affect exchange rates.
• C) Changes in exchange rates affect output.
• D) Changes in the interest rate affect exchange rates which,in turn,affect net exports.
• E) Changes in exchange rates affect the interest rate which,in turn,affects net exports.

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Definitions:

Flexible Budget

A budget that adjusts or flexes for changes in the volume of activity.

Food

Any nutritious substance that people or animals eat or drink or that plants absorb to maintain life and growth.

Supplies

Items used in the operations of a business, usually not directly part of the finished product but necessary for production or administrative tasks.

Spending Variance

The difference between the actual amount of money spent and the budgeted or expected amount in cost accounting, often related to manufacturing costs.