Figure 20-6

-In Figure 20-6, an expansive fiscal policy in a closed economy results in an equilibrium at point E.In an open economy, allowing for the effects of the induced change in the currency value, the final equilibrium would be point

Question

Figure 20-6
 
-In Figure 20-6, an expansive fiscal policy in a closed economy results in an equilibrium at point E.In an open economy, allowing for the effects of the induced change in the currency value, the final equilibrium would be point

Quizplus · Accepted Answer

In an open economy, an expansive fiscal policy can lead to currency appreciation, which may reduce net exports. This effect can shift the equilibrium to a point like J, where the output is lower than in a closed economy due to the impact on the trade balance.

Figure 20-6 -In Figure 20-6, an Expansive Fiscal Policy in a Closed