In a two-good,two-period model,holding everything else constant,an increase in government spending

Question

Quizplus · Accepted Answer

According to the Keynesian theory, an increase in government spending shifts the aggregate demand curve to the right, causing an increase in output and an increase in imports. As a result, the current account balance will decrease, i.e., there will be a decrease in the current account surplus. Therefore, the correct option is (B): unambiguously decreases the current account surplus.

In a Two-Good,two-Period Model,holding Everything Else Constant,an Increase in Government