An increase in government spending in a simple open economy leads to An increase in the budget deficit and a fall in the current account deficit Fall in both budget and current account deficit A fall in budget deficit and a rise in the current account deficit An increase in both the budget and current account deficit Next

An increase in government spending in a simple open economy leads to An increase in the budget deficit and a fall in the current account deficit Fall in both budget and current account deficit A fall in budget deficit and a rise in the current account deficit An increase in both the budget and current account deficit Next

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter23: The International Trade And Capital Flows

Section: Chapter Questions

Problem 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...

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Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of 100 billion, total domestic savings of 1,500 billion, and total domestic physical capital investment of 1,600 billion. According to the national saving and Investment Identity, what will be the current account balance? What will be the current account balance if Investment rises by 50 billion, while the budget deficit and national savings remain the same?
The GDP for the United States is 18,036 billion and its current account balance is 484 billion. What percent of GDP is the current account balance?
Everything else equal, if a country has exports of $15 billion and imports of $16 billion, it follows that the country has a ________. current account deficit and a financial account deficit current account surplus and a financial account deficit current account surplus and a financial account surplus current account deficit and a financial account surplus
Consider the following economy:- Mariginal propensity to save = 0.2 Mariginal propensity to import = 0.2 Investment = $500 Governement spending = $300 Taxes = $ 200 Exports = $400 Autonomous import spending = $100 Given this information, What is initial current account balance for the economy? A - Current account deficit of $205 B - Current account deficit of $125 C - Current account surplus of $125 D - Current account surplus of $150 E - None of the above
People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot a) have both current account and financial account deficits at the same time. b) increase savings at the same time that a trade deficit grows. c) spend more than they earn. d) invest more than they save.
Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of 1% of Germany’s GDP; private savings is 20% of GDP; and physical investment is 18% of GDP. a. Based on the national saving and investment identity, what is the current account balance? b. If the government budget surplus falls to zero, how will this affect the current account balance?
show in graph how the current account got a deficit of 12% GDP and the budget deficit of 3%. Suppose a country has a large current account deficit (in the vicinity of 12% of GDP). It has a gross capital formation rate of 28% of GDP. The country has an overall budget deficit of 3% of GDP. The share of Household and NPISHs Final Consumption Expenditure is 68% of GDP and that of General Government Final Consumption Expenditure is 12%.
‘According to David Hume’s theory of automatic price adjustment, countries experiencing current account deficit see price levels decrease, making them more competitiveandincreasingexports. That makes the current account deficit disappear.’. Critically explore this statement and provide examplesto confirm or disprove it.
A.Explain the main implications for a country of having a persistent deficit on the current account of its balance of payments. B.Discuss the causes of Australia’s sustained current account deficit and explain the impacts of a high current account deficit ( CAD ) on the Australian economy.
Following an expansionary monetary policy, we would expect lower interest rates, dollar a. depreciation, and a decrease in the current account deficit. b. depreciation, and an increase in the current account deficit. c. appreciation, and an increase in the current account deficit. d. appreciation, and a decrease in the current account deficit.
The figure below shows the flow of goods, services, and payments between Kenya (home country) and the rest of the world. with reference to the figure, explain; a) How does the bottom portion, showing the international flow of investments and capital differs from the upper portion. b) The relationship between a current account deficit or surplus and the flow of funds.
Now consider a small open economy, assuming domestic output is held constant and the country initially has a current account deficit. Explain the impact of an increase in government spending on the current account using both words and graphs.