When a temporary adverse supply shock hits a large open economy,it causes the current account to ________ and investment to ________.
A)fall; fall
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; fall

Question

Quizplus · Accepted Answer

A temporary adverse supply shock in a large open economy typically leads to a decrease in production, which can cause exports to fall and imports to potentially increase as the country may need to bring in more goods to meet its needs. This results in the current account falling. Additionally, the adverse supply shock can lead to higher production costs and lower profitability for firms, which in turn reduces the incentive for investment, causing investment to fall as well.

When a Temporary Adverse Supply Shock Hits a Large Open