In a Country Where Output Equals Consumption and I and G

question 29

Multiple Choice

In a country where output equals consumption and I and G are zero, a new investment holds the prospect of permanently increasing output and, thus, consumption. Based on this information, which of the following statements is correct?

• A) If it is a closed economy, then there is a better prospect for investment and consumption smoothing than in an open economy.
• B) If it is an open economy, then it is better for the economy to borrow externally to pay for the investment.
• C) If it is a closed economy, then the increase in investment can be achieved without sacrificing consumption.
• D) If it is an open economy, then it will result in more fluctuations in output and consumption.

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