In a Small Open Economy, If the Government Encourages Investment

Multiple Choice

In a small open economy, if the government encourages investment, through, say, an investment tax credit, investment:

A) increases and is financed through an increase in national saving.
B) increases and is financed through an increase in exports.
C) increases and is financed through an inflow of foreign capital.
D) does not increase; the interest rate rises instead.