Answer:
Option A is correct.
deficit; negative
Explanation:
In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade deficit and negaive net capital outflow.
This corresponds to the concept of twin deficits where a budget deficit that results from increased government purchases, also results in current account deficit. Since trade deficit implies negative NX there is a negative NCO.
