Analyze the impacts of openness to trade in general. Why and how are the impacts of monetary and fiscal policies different in a closed economy versus an open economy? Support your claims with specific details from the course reading

Check the answer below.

Step-by-step explanation

Openness to trade has a positive impact on the economies of various countries. 

 Increased efficiency in resource allocation

 This is because openness in trade facilitates the exchange of ideas. This will benefit both the nations partaking in the business; they can borrow ideas from each other to enable better resource allocation.

Increased access to goods and services.

Trade ensures that goods and services that are not produced in one nation can be obtained from the other trading partners.

Increased productivity

 This is possible through the sharing of knowledge and technologies within the countries in the trade. This will ensure maximization of production and improvement of quality of production.

Fiscal policies in open economies increase importation and decrease demand for goods and services produced within the economy. While in closed economies, budgetary policies increase demand by reducing the amount of taxation within the economy; thus, goods and services are more affordable to citizens.

Expansionary monetary policies in open economies will facilitate more trade because there will be more interests. In closed economies, economic policies and interest rates are determined by the goods and services produced. With the expansionary monetary policies in closed economies, the government will have a deficit to pay for spending