An increase in autonomous investment in a small open economy will cause ________.
A)a trade surplus to shrink
B)a trade deficit to shrink
C)higher net capital outflows
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

An increase in autonomous investment in a small open economy typically leads to an increase in domestic income and output, which in turn increases imports. As imports increase without a corresponding increase in exports, the trade surplus is likely to shrink.

An Increase in Autonomous Investment in a Small Open Economy