A $250 million decrease in government spending causes

Question

Quizplus · Accepted Answer

In a closed economy, all spending changes directly affect the domestic economy because there are no imports or exports to absorb or mitigate the impact. In an open economy, some of the spending changes can be diverted to imports, reducing the domestic impact. Therefore, a decrease in government spending would have a larger effect on a closed economy than on an open economy, as the closed economy cannot offset the decrease through increased foreign trade.

A $250 Million Decrease in Government Spending Causes