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

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

The economy ends up with a negative NCO.

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 positive NCO.

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