Question

why is monetary policy more effective in an open economy compared to a closed economy ?

Answer 1

The monetary policy is more effective in the open economy because an expansionary policy will lead to a flight of capital from the nation and that will depreciate the currency, at a lower rate the exports will increase and as the exports are part of the aggregate demand the demand will increase in the market.

In the closed economy, there is flight of capital but that doesn't lead to an increase in the exports as the economy is closed. It keeps the output same and increase the imports harming the output further as net exports fall in closed economy.