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:

Consideration

In contract law, it is something of value exchanged by the parties involved in a contract, making the agreement legally binding.

Accord And Satisfaction

A legally binding agreement to settle a disputed claim for a definite amount.

Adequacy Of Consideration

The fairness of the value or price exchanged in a contract, though the law typically does not require consideration to be equal in value.

Laissez-Faire

An economic philosophy of free-market capitalism that opposes government intervention in business affairs, advocating for a "let do" or "let people do as they please" approach.