In a large open economy like the United States,an increased government budget deficit which reduces national saving
A)reduces investment and improves the current account balance.
B)reduces investment and reduces the current account balance.
C)has no effect on investment, but reduces the current account balance.
D)has no effect on either investment or the current account balance.

Question

Quizplus · Accepted Answer

An increased government budget deficit reduces national saving, which in turn reduces investment. This is because with lower national saving, there are fewer funds available for investment. Additionally, the reduction in national saving leads to a reduction in the current account balance because there is less money available to purchase foreign goods and invest abroad. Therefore, option B, which states that the increased budget deficit reduces investment and reduces the current account balance, is the correct answer.

In a Large Open Economy Like the United States,an Increased