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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 economy of Germany finds itself in the following situation: the government budget has a surplus of Chapter 23, Problem 46P, Imagine that the economy of Germany finds itself in the following situation: the government budget , example  1 of Germany’s GDP; private savings is Chapter 23, Problem 46P, Imagine that the economy of Germany finds itself in the following situation: the government budget , example  2 of GDP; and physical investment is Chapter 23, Problem 46P, Imagine that the economy of Germany finds itself in the following situation: the government budget , example  3 of GDP.

a. Based on the national saving and investment identity, what is the current account balance?

b. If the government budget surplus falls to zero, how will this affect the current account balance?

a.

To determine

The current account balance on the basis of national saving and investment identity.

Explanation

Given information:

Surplus government budget = 1% of GDP

Private saving = 20% of GDP

Physical investment = 18% of GDP

As the government budget is positive, National savings and investments identity can also be written as:

  S + (M-X) = I + (G-T)

  S + (M-X) = I - (T-G)

b.

To determine

The effect on current account balance if government budget surplus falls to zero.

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