In a two-period SOE model with production, an increase in current domestic total factor productivity

Question

Quizplus · Accepted Answer

An increase in current domestic total factor productivity means that the country is more efficient at producing goods and services. This leads to an increase in domestic output in both periods. Since the country is producing more, there is a higher demand for imports to maintain the production process, which increases the current account deficit. Therefore, the correct answer is E, which states that an increase in domestic total factor productivity leads to an increase in domestic output and an increase in the current account surplus.

In a Two-Period SOE Model with Production, an Increase in Current