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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?

To determine

The possibility of having both trade surplus and a healthy inflow of capital from abroad for which a government official started arguments

Explanation

A country could not strive for both a trade surplus and a healthy inflow of capital from abroad at same time. Current account deficit means that the country is a net borrower from abroad and a positive current account balance shows that a country is net lender to the rest of the world.

However, trade surplus means an overall outflow of financial investment capital, as domestic investors put their funds abroad, while a deficit in trade or current account balance is exactly equal to the overall or net inflow of foreign investment capital from abroad...

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