Why Is Fiscal Policy Less Effective in an Open Economy

Multiple Choice

Why is fiscal policy less effective in an open economy than in a closed economy?

A) Expansionary fiscal policy raises demand for imports, which reduces aggregate demand.
B) Expansionary fiscal policy raises interest rates, which raises the value of the currency, and reduces aggregate demand.
C) Expansionary fiscal policy raises the value of the currency, which reduces demand for exports.
D) Expansionary fiscal policy has all the above effects.