In a small open economy,an increase in government spending,while taxes remain the same,will be accompanied by

Question

Quizplus · Accepted Answer

An increase in government spending will lead to a decrease in national savings as the government will be using resources that otherwise would have been invested in the private sector, leading to a reduction in private investment and an increase in private savings. In addition, increased government spending may lead to an increase in imports, thereby increasing foreign borrowing. Therefore, option C is the most appropriate choice.

In a Small Open Economy,an Increase in Government Spending,while Taxes