If there is an increase in the future marginal product of capital in a small open economy,it causes the current account to ________ and saving to ________.
A)fall; rise
B)rise; remain unchanged
C)fall; remain unchanged
D)rise; rise

Question

Quizplus · Accepted Answer

An increase in the future marginal product of capital makes investment more attractive, leading to higher investment today. This increases the demand for funds, which can lead to a current account deficit (fall). However, in a small open economy, saving is determined by factors like income and not directly by investment opportunities, so it remains unchanged.

If There Is an Increase in the Future Marginal Product