In an open economy, an expansionary monetary policy:
A) is very effective in changing real GDP.
B) is not effective in changing real GDP.
C) is not effective in changing the exchange rate.
D) is not effective in changing capital flows between countries.
E) has no effect on interest rates.

Question

Quizplus · Accepted Answer

In an open economy, an expansionary monetary policy can effectively change real GDP by lowering interest rates, which stimulates investment and consumption, and can also affect the exchange rate, making exports more competitive.

In an Open Economy, an Expansionary Monetary Policy