In a large open economy like the United States,an increased government budget deficit that reduces national saving
A)reduces investment and improves the current account balance.
B)reduces investment and reduces the current account balance.
C)has no effect on investment,but reduces the current account balance.
D)has no effect on either investment or the current account balance.

Question

Quizplus · Accepted Answer

When the government budget deficit reduces national saving, it leads to a decrease in the supply of loanable funds and an increase in the interest rate, which in turn reduces investment. Additionally, with a reduced national saving, there is less money available for investment in the country, which also leads to a reduction in the current account balance as foreign investors may look to invest elsewhere. Therefore, an increased government budget deficit that reduces national saving would reduce investment and reduce the current account balance, making Option B the correct choice.

In a Large Open Economy Like the United States,an Increased