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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

Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of Chapter 23, Problem 44P, Imagine that the U.S. economy finds itself in the following situation: a government budget deficit , example  1 billion, total domestic savings of Chapter 23, Problem 44P, Imagine that the U.S. economy finds itself in the following situation: a government budget deficit , example  2 billion, and total domestic physical capital investment of Chapter 23, Problem 44P, Imagine that the U.S. economy finds itself in the following situation: a government budget deficit , example  3 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 Chapter 23, Problem 44P, Imagine that the U.S. economy finds itself in the following situation: a government budget deficit , example  4 billion, while the budget deficit and national savings remain the same?

a.

To determine

The current account balance when government budget deficit of $100 billion, domestic savings of $1500 billion and capital investment of $ 1,600 billion.

Explanation

In US economy,

Government budget deficit = $100 billion

Total domestic savings =

  $1500 billion

Total domestic physical capital invests = $1600 billion

Calculation of current account balance:

  Supply of financial capital=Demand of financial capital Savings + current account deficit=Government borrowings+physical investment

&

b.

To determine

The current account balance when government budget deficit of $100 billion, domestic savings of $1500 billion and capital investment rises by $50 billion so, it increased to $ 1,650 billion.

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