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 in the home country would lead to a decrease in the cost of production, causing an increase in profitability and incentives for firms to invest in new capital to take advantage of the lower costs. This would increase the demand for investment goods, which in turn would increase gross domestic investment in the home country. There is no direct correlation between an increase in technology and the MPK or lending to foreigners.

In the Market Clearing Model with World Markets for Goods