The monetary transmission mechanism in an OPEN economy is more complicated than

Question

The monetary transmission mechanism in an OPEN economy is more complicated than it is in a closed economy because the effects of domestic monetary contraction or expansion are A. strengthened because changes in the domestic money supply cause changes in the exchange rate, which then reinforce the changes in desired investment. B. strengthened because domestic interest rates must be equal to those in the rest of the world. C. strengthened because changes in autonomous expenditure cause monetary effects that influence interest rates in the rest of the world. D. weakened because changes in autonomous expenditure cause monetary effects that influence interest rates in the rest of the world. E. weakened because changes in the domestic money supply cause changes in the exchange rate which then offset the changes in desired investment.

Explanation / Answer

Option (A).

Changes in exchange rate leads to an added change in investment.

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