In the classical model with an open economy,an increase in the trade deficit as a result of a tax cut,causes a decline in the interest rate,attracting more loanable funds from abroad.

Question

Quizplus · Accepted Answer

In the classical model, a tax cut increases consumption, reducing national savings, which can lead to a higher interest rate to attract foreign capital, not a decline.

In the Classical Model with an Open Economy,an Increase in the Trade