Question 1: International interdependencies In a two-country world with countries A and B, A has an annual current account (CA) deficit of 100 billion Dollars. The national account equations of both countries are (YA = CA + IA + XA-MA+ GA-TA) and (YB = CB+ IB + XB-MB + GB-TB). a) An economist remarks that the current account position of B is equal to the net international borrowing of the private and public sectors in A. Is he right? Demonstrate your answer using the national income components of A. b) After elections in A, the new government of A promotes smaller net government spending to become more competitive, by stimulating net exports and achieving a current account surplus. To achieve this, which changes in the national account equation is the government hoping for, and are these changes to be expected? c) Another economist states that "The success of this policy depends on the behavior of international lenders and investors". Is she right? Explain your answer.

Question 1: International interdependencies In a two-country world with countries A and B, A has an annual current account (CA) deficit of 100 billion Dollars. The national account equations of both countries are (YA = CA + IA + XA-MA+ GA-TA) and (YB = CB+ IB + XB-MB + GB-TB). a) An economist remarks that the current account position of B is equal to the net international borrowing of the private and public sectors in A. Is he right? Demonstrate your answer using the national income components of A. b) After elections in A, the new government of A promotes smaller net government spending to become more competitive, by stimulating net exports and achieving a current account surplus. To achieve this, which changes in the national account equation is the government hoping for, and are these changes to be expected? c) Another economist states that "The success of this policy depends on the behavior of international lenders and investors". Is she right? Explain your answer.

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 6SCQ: The GDP for the United States is 18,036 billion and its current account balance is 484 billion. What...

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