An increase in domestic demand will have which of the following effects in an open economy?

Question

Quizplus · Accepted Answer

In an open economy, an increase in domestic demand will not have as large of an effect on output as it would in a closed economy because some of the demand may be satisfied through imports. Additionally, an increase in domestic demand will likely lead to an increase in imports, causing a negative effect on the trade balance. Therefore, the correct answer is B.

An Increase in Domestic Demand Will Have Which of the Following