If there's an increase in the future marginal product of capital in a large open economy,it causes the current account to ________ and saving to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; rise

Question

Quizplus · Accepted Answer

An increase in the future marginal product of capital in a large open economy would lead to an increase in investment demand. To finance this increase in investment, the economy would save more, leading to a rise in saving. However, to accommodate this increased saving and investment, the current account (which reflects the difference between national saving and investment) would fall as the economy invests more in the present for future returns.

If There's an Increase in the Future Marginal Product of Capital