In a Two-Period SOE Model with Production, an Increase in the Capital

question 31

Multiple Choice

In a two-period SOE model with production, an increase in the capital stock

• A)decreases domestic output and increases the current account surplus.
• B)can eliminate the current account deficit in the long run.
• C)increases domestic output and decreases consumption.
• D)has no impact on domestic consumption.
• E)decreases domestic output and decreases the current account surplus.

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Definitions:

Negative Externality

An adverse effect on a third party not directly involved in a transaction, which results from economic activity without compensation.

Negative Externality

A cost suffered by a third party due to an economic transaction, without compensation.

After-Tax Equilibrium

The balance reached in the market after accounting for the effects of taxes.

Socially Optimal Quantity

The level of output or production that maximizes societal welfare, taking into account all external costs and benefits.