In an open economy with strong international trade, increases in government spending are likely to have an overall "crowding out" effect.

Question

Quizplus · Accepted Answer

In an open economy with strong international trade, increases in government spending can lead to higher interest rates, which may attract foreign capital but can also crowd out private investment by making borrowing more expensive for businesses. This can reduce the overall effectiveness of government spending in stimulating economic growth.

In an Open Economy with Strong International Trade, Increases in Government