With an increase in the budget deficit,the open-economy outcome,compared to the closed-economy outcome,features a ___________ in Real GDP.

Question

Quizplus · Accepted Answer

In an open economy, an increase in the budget deficit could lead to higher interest rates, which in turn would cause a decrease in investment and net exports. As a result, the effect on Real GDP would be smaller compared to a closed economy where these channels are not open. Therefore, the increase in Real GDP in an open economy would be smaller.

With an Increase in the Budget Deficit,the Open-Economy Outcome,compared to the Closed-Economy