Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase:
A) investment in the small open economy.
B) saving in the small open economy.
C) exports by the small open economy.
D) imports by the small open economy.

Question

Quizplus · Accepted Answer

When large foreign countries increase their domestic government purchases, it typically leads to an increase in demand for goods and services. This can result in an increase in exports from the small open economy to these countries, as they seek to fulfill the additional demand generated by the increased government spending.

Starting from a Small Open Economy with Balanced Trade, If