Answer Happy

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
country) will have a current account balance
defificit.
E. None of the above.