Consider a small open economy in equilibrium with a zero current account balance. What happens to...

Consider a small open economy in equilibrium with a zero current account balance. What happens to national saving, investment, and the current account balance in equilibrium if

a.future income rises?

b.business taxes rise?

c.government expenditures decline temporarily?

d.the future marginal product of capital rises

Expert Solution

a) Saving curve shifts left Saving will fall Investment will be unchanged and Current account falls

b) Investment curve shifts left. Saving unchanged, Investment falls, Current Account rises.

(c) Saving curve shifts right. Saving rises, Investment unchanged, Current Account rises.

(d) Investment curve shifts right. Saving unchanged, Investment rises, Current Account falls.

Rahul Sunny answered 2 years ago

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