Rather than cut consumption during any year to make a productive investment, ___________ nation that chooses to finance investment and preserve consumption during the first year_______________.
A) an open-economy; is always worse off.
B) a closed-economy; is better off if the return is greater than the rate of interest.
C) an open-economy; is better off if the return is greater than the rate of interest.
D) a closed-economy; is subject to criticism for policies that favor rich investors.

Question

Quizplus · Accepted Answer

An open-economy that finances investment and preserves consumption during the first year can be better off if the rate of return on the investment is greater than the rate of interest. This leads to an increase in total consumption in the long run as the investment generates a return that can be added to future consumption. In a closed-economy, this may still be beneficial, but the impact is not as significant as in an open-economy where trade and investment flows can have a bigger impact. Therefore, option C is the best choice as it provides the most accurate and beneficial statement.

Rather Than Cut Consumption During Any Year to Make a Productive