Suppose a New Technology Is Developed That Increases Investment Demand

Essay

Suppose a new technology is developed that increases investment demand in both a closed economy and in a small open economy that are in other ways identical.Holding other factors constant,will the quantity of investment spending increase more in the closed economy or in the small open economy? Explain.Assume prices are flexible and that factors of production are fully employed in both economies.Use the basic version of the open-economy model that abstracts from foreign debt accumulation.