Suppose that there are two large economies in the world, country A (the foreign country) and country B (the home country). Suppose that initially, both countries have a zero current account balance and the world real rate of interest is 5 percent. Suppose now that there is a technological innovation in country A (the foreign country) only. In this case, which of the following is correct? A. The world real interest rate will rise and country B (the home coun- try) will have a current account balance surplus. B. The world real interest rate will rise and country A (the foreign country) will have a current account balance surplus. C. The world real interest rate will fall and country B (the home coun- try) will have a current account balance surplus. D. The world real interest rate will fall and country A (the foreign
Suppose that there are two large economies in the world, country A (the foreign country) and country B (the home country). Suppose that initially, both countries have a zero current account balance and the world real rate of interest is 5 percent. Suppose now that there is a technological innovation in country A (the foreign country) only. In this case, which of the following is correct? A. The world real interest rate will rise and country B (the home coun- try) will have a current account balance surplus. B. The world real interest rate will rise and country A (the foreign country) will have a current account balance surplus. C. The world real interest rate will fall and country B (the home coun- try) will have a current account balance surplus. D. The world real interest rate will fall and country A (the foreign
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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