Consider an economy that lasts for two periods, period 1 and period 2. Let TBị denotes the trade bal- ance in period t, CA, the current account balance in period 1, and Bi the country's net international investment position at the end of period 1. Let r denote the interest rate paid on assets held for one period. Assume net international payments to employees, net unilateral transfers, and valuation changes are always equal to zero, so that in period t = 1,2: CA, = rB = TB and CA = B; - B-1 C) If the country starts period 1 with no debt or assets, what can you say about the current accour in neriods 1 and 22

Consider an economy that lasts for two periods, period 1 and period 2. Let TBị denotes the trade bal- ance in period t, CA, the current account balance in period 1, and Bi the country's net international investment position at the end of period 1. Let r denote the interest rate paid on assets held for one period. Assume net international payments to employees, net unilateral transfers, and valuation changes are always equal to zero, so that in period t = 1,2: CA, = rB = TB and CA = B; - B-1 C) If the country starts period 1 with no debt or assets, what can you say about the current accour in neriods 1 and 22

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter19: International Finance And The Foreign Exchange Market

Section: Chapter Questions

Problem 1CQ

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