Assume that the (fictional) countries of East Spenders and South Spenders have exactly the same economies, including the same government debt-to- GDP ratio of 90%, except that East Spenders is in a common currency area with East Savers called the East Currency Union. Suppose further that East Savers has exactly the same economy as North Savers, including the same government debt-to-GDP ratio of 40%, except that North Savers is not in the East Currency Union. True or False: Ir lenders to East Spenders did not expect that other countries in the East Currency Union would pay the interest or meet the repayment schedule on East Spenders's debt if it could not (that is, if lenders did not expect East Spenders to be bailed out if it threatens to default on its loans), then the free-rider problem would not occur in the East Currency Union. True False Assume that lenders' expectations are such that the free rider problem is not occurring in the East Currency Union. If North Savers can borrow at an interest rate of 9%, East Savers could most likely borrow at an interest rate

Assume that the (fictional) countries of East Spenders and South Spenders have exactly the same economies, including the same government debt-to- GDP ratio of 90%, except that East Spenders is in a common currency area with East Savers called the East Currency Union. Suppose further that East Savers has exactly the same economy as North Savers, including the same government debt-to-GDP ratio of 40%, except that North Savers is not in the East Currency Union. True or False: Ir lenders to East Spenders did not expect that other countries in the East Currency Union would pay the interest or meet the repayment schedule on East Spenders's debt if it could not (that is, if lenders did not expect East Spenders to be bailed out if it threatens to default on its loans), then the free-rider problem would not occur in the East Currency Union. True False Assume that lenders' expectations are such that the free rider problem is not occurring in the East Currency Union. If North Savers can borrow at an interest rate of 9%, East Savers could most likely borrow at an interest rate

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...

See similar textbooks

Similar questions

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 trade balance? What will be the trade balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?
Which of the following economic reasoning behind the twin deficit theory is not correct?a. According to the national income accounting, if private saving and investment stay constant, a government budget deficit can cause a trade deficit by reducing national saving. b. Government budget deficits (due to expansionary fiscal policy) and trade deficits during the 1980s and early 2000s in the US are the cases of the twin deficits.c. The chain of causality can work in a reverse way: a smaller fiscal deficit leads to a smaller trade deficit, other things being equal.d. All of the above are correct.
The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a tariff will reduce South Africa's trade deficit A. Because exports will be promoted and imports cannot possibly change B.Because imports will be reduced and exports cannot possibly change C.Only if the tariff has no impact on South Africa's spending or income D.Only if the tariff leads to increased income in South Africa relative to its spending
The macroeconomic view of a trade deficit implies that, other things equal, the imposition of a tariffwill reduce South Africa's trade deficit A Because exports will be promoted and imports cannot possibly changeB Because imports will be reduced and exports cannot possibly changeC Only if the tariff has no impact on South Africa's spending or incomeD Only if the tariff leads to increased income in South Africa relative to its spending
Consider three different closed economies with the following national income statistics. Country A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and services of $30 billion. Country B has private savings of $60 billion, and investment expenditures of $50 billion. Country C has GDP of $300 billion, investment of $70 billion, consumption of $180 billion, taxes of $60 billion, and transfers of $20 billion. Based on this information, which country has a $10 billion deficit? Country A Country B Country C All the three countries.
Explain how economic populist policies usually lead to overvalued exchange rates and large trade deficits.
Assume that in 2010, a country had a GDP of $500$⁢500 billion, a budget deficit of $6$⁢6 billion, and a trade deficit of $10$⁢10 billion. In five years, the budget deficit became $4.0$⁢4.0 billion, and the trade deficit as a percentage of GDP changed by 0.70.7 percentage point(s). GDP remained unchanged.Calculate the dollar value of the trade deficit in 2015.
Why is the bilateral trade deficit between 2 countries a bad measure of whether those countries treat each other fairly? Give an example, for instance trade between Japan and Saudi Arabia
Suppose that during 2004, country A had exports of goods of $50, imports of goods of $60, exports of servicces plus investment income receipts from abroad of $36, and imports of services plus the sending of payments of investment income abroad of $30. In addition, during 2004, country A made $15 of unilateral transfers abroad and received no unilateral transfers from abroad. Given this information, country A's "balance on current account" in 2004 was a. a $19 deficit b. a $10 deficit c. a $4 deficit d. a $6 surplus
If a country has a trade deficit of $30 billion, which of the following can be true? Group of answer choices The country's exports are $150 billion and its imports are $120 billion. The country's exports are $110 billion and its imports are $140 billion. The country's exports are $140 billion and its imports are $40 billion. The country's exports are $120 billion and its imports are $140 billion.
During the year, Japan had a current-account surplus of 98 billion. What is the gap between Japan’s national expenditure and its national income? Explain. What is the gap between Japan’s savings and its domestic investment? Explain. Suppose the Japanese government’s budget ran a 22 billion surplus during the year. What can you conclude about Japan’s private savings-investment balance for the year? Explain.
Illustrate diagrammatically and explain fiscal expansion under fixed exchange rates and perfect capital mobility