Expansionary fiscal policy financed by borrowing is more effective in affecting real growth in a closed economy than in an open economy.

Question

Quizplus · Accepted Answer

In a closed economy, there are no external trade or capital flows, so fiscal policy directly impacts domestic demand and growth. In an open economy, some of the effects may leak abroad through imports or capital outflows, reducing its effectiveness on domestic growth.

Expansionary Fiscal Policy Financed by Borrowing Is More Effective in Affecting