Why Is Fiscal Policy Less Effective in an Open Economy

question 33

Multiple Choice

Why is fiscal policy less effective in an open economy than in a closed economy?

• A)Expansionary fiscal policy raises demand for imports, which reduces aggregate demand.
• B)Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand.
• C)Expansionary fiscal policy raises the value of the currency, which reduces demand for exports.
• D)Expansionary fiscal policy has all the above effects.

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