Suppose a New Technology Is Developed That Increases Investment Demand

question 114

Essay

Suppose a new technology is developed that increases investment demand in both a closed economy and in a small open economy that are in other ways identical. Holding other factors constant, will the quantity of investment spending increase more in the closed economy or in the small open economy? Explain. Assume prices are flexible and that factors of production are fully employed in both economies. Assume there is perfect capital mobility for the small open economy.

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Definitions:

Electroencephalograph (EEG)

A device used to record the electrical activity of the brain, typically used for diagnostic purposes.

Electromyograph (EMG)

A diagnostic tool used to measure the electrical activity produced by skeletal muscles.

Electrocardiograph (EKG)

A medical test that measures the electrical activity of the heart to identify various heart conditions.

Electro-Oculograph (EOG)

A method of measuring eye movements by recording the electrical activity generated by the movement of the eye.