An increase in the trade deficit of a small open economy could be the result of:

Name: An increase in the trade deficit of a small open economy could be the result of:
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Question

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An increase in government spending can lead to an increase in the trade deficit of a small open economy. This is because higher government spending can increase domestic demand, including demand for imported goods, without necessarily increasing domestic production to the same extent, thus widening the trade deficit.

An Increase in the Trade Deficit of a Small Open