Question: Initially, there is a trade deficit in a small open economy with perfect capital mobility. Suppose an investment tax credit is introduced to give a

Initially, there is a trade deficit in a small open economy with perfect capital mobility. Suppose an investment tax credit is introduced to give a tax advantage to any firm building a new factory or buying a new piece of equipment. Which of the following statement is correct?

National savings increase and the exchange rate increases.

Investment decreases and the exchange rate increases.

National savings remain unchanged and the exchange rate increases.

National savings decreases and the exchange rate decreases.

National savings remain unchanged and the exchange rate decreases.

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