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.
Answer: C
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The interest rate the Federal Reserve charges a bank when it borrows reserves from the Fed is called the
A) federal funds rate. B) prime rate. C) market interest rate. D) discount rate. E) borrowing rate.
A challenge faced by middle-income countries in ___________ the standard of living is a legacy of government economic controls.
a. improving b. decreasing c. maintaining d. controlling
To reduce structural unemployment, a nation should focus on:
a. Changing the exchange rate so more can be exported and less imported. b. Improving educational opportunities and job training c. Increasing government spending for the military. d. Cutting income taxes. e. All the above.
When economists say that banks must hold a percentage of their total deposits in reserve form, what does this mean?
A) It means that banks must hold a fraction of their customers' deposits either as bank deposits at the Federal Reserve, or as vault cash, or both. B) It means that banks reserve the right to turn away customers a certain percentage of the time. C) It means that the fraction of vault cash a bank has cannot be greater than the fraction of bank deposits (it has) at the Federal Reserve. D) Essentially, it means that total reserves are greater than required reserves. E) none of the above