Question

The impact of crowding out

a. is larger in a closed economy as compared to an open economy.


b. is larger in an open economy as compared to a closed economy when fiscal policy is contractionary.


c. is larger in a closed economy as compared to an open economy when the fiscal policy is contractionary.


d. is larger in an open economy as compared to a closed economy

Answer 1

The correct answer is D

Step-by-step explanation:

The crowding out in economics is defined as the phenomenon which happen when increased government involvement in the sector of the market and the economy substantially affects the remainder of the market through demand or the supply side of the market.

Open economy is the economy where not only the domestic companies but also entities of another country in trade of products whereas the closed economy is the economy where there is no trading activity with the outside economies.

So, the crowding out impact would be larger in the open economy as compare to the closed economy.