Question: Initially, there is a balanced trade in a small open economy with perfect capital mobility. Suppose the government expenditure decreases. Which of the following statement

Initially, there is a balanced trade in a small open economy with perfect capital mobility. Suppose the government expenditure decreases. Which of the following statement is correct?

It does not provide sufficient information to conclude whether the economy ends up with a positive, zero, or negative NCO.

The economy ends up with a zero NCO.

The economy ends up with a negative NCO.

The economy ends up with a positive NCO.

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