The different effects of fiscal and monetary policy in an open economy with mobile capital hinges on their different effect on
A)price levels.
B)interest rates.
C)the money supply.
D)real GDP.

Question

Quizplus · Accepted Answer

Monetary policy affects interest rates in an economy, while fiscal policy affects government spending and taxation. In an open economy, where capital is mobile, changes in interest rates resulting from monetary policy can attract or repel foreign investment, while changes in government spending and taxation resulting from fiscal policy may have less of an impact on the movement of capital. Therefore, the different effects of fiscal and monetary policy in an open economy with mobile capital hinge primarily on their effect on interest rates.

The Different Effects of Fiscal and Monetary Policy in an Open