Question

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade ______ and ______ net capital outflow.

Answer 1

Answer:

deficit and negative

Explanation:

correct answer is deficit and negative because here as This is in line with the concept of twin deficits

where the current budget deficit is also the current account deficit resulting from the increase in government procurement. Trade deficit negative NX means negative net capital outflow