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What are the key channels by which fiscal policy affects output in a closed versus open economy ( write down the sequence of variables by
What are the key channels by which fiscal policy affects output in a closed versus open economy ( write down the sequence of variables by which changes in fiscal policy are transmitted to output in the economy)? Using the models studied in class, discuss what is meant by "crowding out", and how the crowding out effect works in an open economy. How does this effect differ from the way it works in a closed economy? To what extent does the efficacy of fiscal policy (i.e. in affecting output) depend on the type of exchange rate regime?
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