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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Definitions:

Ethnocide

The intentional and organized obliteration of an ethnic group's cultural identity.

Acculturation

The process of cultural change and psychological change that results following meeting between cultures.

Cultural Heritage

The legacy of physical artifacts and intangible attributes of a group or society that are inherited from past generations, maintained in the present, and bestowed for the benefit of future generations.

Satyagraha Movement

A movement based on nonviolent resistance, initiated by Mahatma Gandhi to challenge British rule in India and promote social change.