Holding other factors constant, legislation to cut taxes in an open economy will:
A) increase national saving and lead to a trade surplus.
B) increase national saving and lead to a trade deficit.
C) reduce national saving and lead to a trade surplus.
D) reduce national saving and lead to a trade deficit.

Question

Quizplus · Accepted Answer

The legislation to cut taxes will reduce national saving as households and businesses will have more disposable income to spend or invest. This increase in consumption and investment will lead to an increase in imports, which will create a trade deficit.

Holding Other Factors Constant, Legislation to Cut Taxes in an Open