The Netherlands is considered to have an open economy. In an open economy, government budget deficit results in the following EXCEPT:
A)increase in domestic investment
B)reduction of loanable funds supply
C)increase in interest rate
D)decrease in net foreign investment

Question

Quizplus · Accepted Answer

In an open economy, government budget deficit does not result in an increase in domestic investment.
Key Takeaway: In an open economy, government budget deficits have a negative impact. Among the impact are an increase in interest rates which leads to a reduction in domestic investment. These deficits also lead to a decrease in net foreign investment and a reduction of loanable funds supplies.

The Netherlands Is Considered to Have an Open Economy