Due to a change in the regulatory structure of a small open economy, the desired capital stock becomes higher for both private investment and government investment
Increased government investment spending is financed by borrowing, not by higher taxes. If both desired investment and government spending rise at the same time, will there be "twin deficits"?
Desired saving shifts left, desired investment shifts right, so the current account balance declines; there are twin deficits.
You might also like to view...
Which of the following is true concerning the substitution effect of a decrease in price?
A) It will lead to an increase in consumption only for a normal good. B) It always will lead to an increase in consumption. C) It will lead to an increase in consumption only for an inferior good. D) It will lead to an increase in consumption only for a Giffen good.
If a CEO can type faster than her secretary, then
A) the CEO has a comparative advantage in typing. B) the CEO has neither a comparative advantage in typing, nor in management. C) the CEO should still continue performing CEO duties since the CEO has a comparative advantage in management, and the secretary should continue typing. D) the CEO should still continue performing CEO duties as well as typing since he has a comparative advantage in both management, and typing.