In the market clearing model with world markets for goods and credit, an increase in technology, A, in the home country causes:

Question

Quizplus · Accepted Answer

An increase in technology, A, in the home country causes an increase in productivity, which increases the marginal productivity of capital (MPK) in the home country (Affective assertion). This, in turn, increases the incentive for domestic firms to invest, leading to an increase in gross domestic investment in the home country. (Affective assertion). However, the home country may not have enough savings to finance the increased investment, so it may need to borrow from foreigners to finance the investment, resulting in an increase in borrowing from foreigners. (Affective assertion). Therefore, all of the above options are correct.

In the Market Clearing Model with World Markets for Goods