An increase in the trade deficit of a small open economy could be the result of:
A)an increase in taxes.
B)an increase in government spending.
C)a decrease in the world interest rate.
D)the expiration of an investment tax-credit provision.

Question

Quizplus · Accepted Answer

An increase in government spending can lead to a higher trade deficit as it may increase domestic demand, including demand for imports, without a corresponding increase in exports.

An Increase in the Trade Deficit of a Small Open