(Solution) - Suppose that American firms become more optimistic and decide to -(2025 Original AI-Free Solution)

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Suppose that American firms become more optimistic and decide to increase investment expenditure today in new factories and office space.
a. How will this increase in investment affect output, interest rates, and the current account?
b. Now assume that domestic investment is very responsive to the interest rate so that U.S. firms will cancel their new investment plans if the interest rate rises. How will this affect the answer you gave previously?