Question

Monetary policy has a​ ________ effect on aggregate demand in​ a(n) ________​ economy, and fiscal policy has a​ ________ effect on aggregate demand in​ a(n) ________ economy.A. weaker; open;​ weaker; open
B. weaker; closed;​ stronger; closed
C. stronger; closed;​ weaker; open
D. ​stronger; open;​ weaker; closed

Answer 1

Answer:

The correct answer is D

Explanation:

In the open economy, there is a regime of flexible exchange which means that the monetary policy will be more effective than the fiscal policy as the aggregate demand (AD) is boosted by the depreciation in the exchange rate which result in decrease in the interest rate.

So, the monetary policy has stronger effect on AD in the open economy and the fiscal policy has weaker impact on AD in closed economy.