In a Small Open Economy, Starting from a Position of Balanced

question 10

Multiple Choice

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow.

• A) deficit; negative
• B) surplus; positive
• C) deficit; positive
• D) surplus; negative

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Definitions:

Depression

An extended period of significant decline in economic activity across the economy, characterized by high unemployment, low output, and deflation.

Technological Development

Technological development involves the process of researching, innovating, and implementing new technologies to improve or create products, services, and processes.

Banks Closed

"Banks Closed" refers to situations when banking institutions are not operating, which could be due to holidays, strikes, financial crises, or regulatory actions.

Travel Time

The duration taken to move from one location to another.