The aggregate demand curve for an open economy under fixed exchange rates is
A)less elastic than if the economy were closed
B)more elastic than in the economy were closed
C)more elastic than in the economy operated with flexible exchange rates
D)all of the above

Question

Quizplus · Accepted Answer

An open economy with fixed exchange rates has less flexibility to adjust to changes in the economy, which makes the aggregate demand curve more elastic. In a closed economy or an open economy with flexible exchange rates, there is more flexibility to adjust to changes, which makes the aggregate demand curve less elastic. Therefore, B is the correct choice.

The Aggregate Demand Curve for an Open Economy Under Fixed