An open economy has:
A) greater ability to smooth its consumption because of the absence of domestic shocks.
B) greater ability to smooth its consumption because of the ability to borrow internationally.
C) less ability to smooth its consumption because of the lower marginal product of capital.
D) less ability to smooth its consumption to weak links present in the financial system.

Question

Quizplus · Accepted Answer

An open economy has access to international borrowing which provides it with greater ability to smooth its consumption. This is because it can borrow from other countries during periods of economic downturns or when faced with domestic shocks.

An Open Economy Has