Final answer:
An improving economy can affect the budget balance, investment, and the trade balance. As tax revenues increase, the budget deficit decreases, freeing up funds for private investment. The trade balance can be impacted by increased demand for imports but may also improve due to higher domestic production.
Step-by-step explanation:
In an improving economy with no discretionary increase in government spending, there will be an impact on the budget balance, investment, and the trade balance.
As the economy improves, tax revenues will increase due to higher incomes, leading to a decrease in the budget deficit or an increase in the budget surplus. This change in the budget balance can affect investment and the trade balance. If the government uses the surplus to pay off debt, it reduces the need for borrowing, which can free up funds for private investment. This can potentially lead to increased investment in the economy.
The trade balance can also be impacted by an improving economy. As incomes rise, there is an increased demand for imports. This can cause the trade balance to worsen as imports exceed exports. However, if the increase in incomes leads to higher domestic production, it can also result in higher exports, thereby improving the trade balance.