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Due to a Change in the Regulatory Structure of a Small

question 54

Essay

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"?


Definitions:

Variance

A statistical measure of the dispersion of data points in a data set, indicating how far each data point lies from the mean.

Financial Asset

Any asset that is cash, an equity instrument of another entity, or a contractual right to receive cash or another financial asset.

Risk-free Asset

An investment with zero default risk, often assumed to be government bonds, providing a guaranteed return.

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