When compared to a closed economy, fiscal policy is more effective and monetary policy is less effective in an open economy.

Question

Quizplus · Accepted Answer

In an open economy, fiscal policy tends to be less effective due to the potential for increased imports reducing the impact of government spending on domestic output, while monetary policy can be more effective as changes in interest rates can influence capital flows and exchange rates, affecting net exports.

When Compared to a Closed Economy, Fiscal Policy Is More