Suppose the U.S.Congress is successful in enacting tariffs large enough to eliminate the current account deficit.What would happen to the level of domestic investment?
A)It would not change.
B)It would rise and exceed national saving.
C)It would rise to a level equal to net foreign investment.
D)It would fall to a level equal to national saving.

Question

Quizplus · Accepted Answer

If tariffs are successful in eliminating the current account deficit, it means that the country would be producing enough to finance its own consumption and therefore would not need to borrow from foreigners. This would lead to a decrease in net foreign investment, and domestic investment would fall to a level equal to national saving.