Explain the difference between an open economy and a closed economy
What will be an ideal response?
An open economy is an economy with international trade. In an open economy, full employment output is divided among four uses: consumption, investment, government purchases, and net exports. A closed economy is an economy without international trade. In a closed economy, full employment output is divided among just three different uses: consumption, investment, and government purchases.
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A demand curve for a Giffen good would be
A) upward sloping. B) downward sloping. C) horizontal. D) vertical.
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.
According to Say's Law, all goods produced will be sold:
A. As long as the government establishes the correct price. B. Because technology is constantly improving. C. If prices are flexible and free to change. D. If trade barriers protect domestic production.
Refer to the figure below. Assume the market is originally at point W. Movement to point X is the result of: 
A. an increase in supply and an increase in demand. B. an increase in demand and an increase in quantity supplied. C. a decrease in supply and an increase in quantity demanded. D. an increase in supply and an increase in quantity demanded.