Question

If net exports were not sensitive to changes in the real interest rate, would monetary policy be more or less effective in changing output?

Short answer

If the new exports don't respond or change with the change in real interest rates, the monetary policy are going to be effective. This reason lays the very fact that monetary policy leads to change in finances with effect from interest rates.

Step-by-step solution

Concept Introduction 

Monetary Policy is formulated by financial organisation to take care of the interest rates and monetary resource within the economy. financial institution operates monetary policy so on attain appropriate rate, consumption level, growth and liquidity rate within the economy.

Explanation of Solution 

Real Interest Rates are the rates which each investor expects to attain after granting for inflation. Net export is that the value of total exports done by a rustic minus its imports.

Net Export = Exports - Imports

If the new exports don't respond or change with the change in real interest rates, the monetary policy are going to be effective. This reason lays the very fact that monetary policy leads to change in finances with effect from interest rates.

Rather, economic policy are going to be affected if net exports don't change with change in interest rates.