Economics, Student Value Edition (7th Edition)
7th Edition
ISBN: 9780134739229
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 29, Problem 29.1.11PA
To determine
The reason behind the substantial foreign debts while the country runs the current account deficit.
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Write a short essay (max 150 words) analyzing the following.
The US has been maintaining a current account deficit for a long time. It widened by
167.0billion, or 34.8percent, to647.2 billion in 2020.
Using the two-period model of the current account, explain why Covid-19 can cause this widening.
United States currently runs a significant trade deficit with the rest of the world. Research an academic journal article regarding some of our trade balances with specific countries and share what you find. For example, with whom do we run the largest deficits, with whom do we have surpluses, etc.? Do you think it is a problem if we run a trade deficit? Why or why not? In answering, keep in mind what impact a trade deficit has on other parts of our balance of payments.
68
Schmitt-Grohé, Uribe, Woodford
2.6
Exercises
Exercise 2.1 Indicate whether the following statements are true, false, or
uncertain and explain why.
1. An economy that starts with a positive net international investment
position will run a trade balance deficit at some point.
2. A country has been having trade balance deficits for 45 years. Four
decades ago, the country was a net creditor, but after so many trade
deficits it became a debtor. Clearly, this economy will have to run
trade surpluses at some point.
3. A two-period economy runs trade surpluses in both periods. It follows
that the current account in period 1 can have either sign (depending
on the magnitude of TB1), but the current account in period 2 must
be positive.
Chapter 29 Solutions
Economics, Student Value Edition (7th Edition)
Ch. 29 - Prob. 29.1.1RQCh. 29 - Prob. 29.1.2RQCh. 29 - Prob. 29.1.3RQCh. 29 - Prob. 29.1.4PACh. 29 - Prob. 29.1.5PACh. 29 - Prob. 29.1.6PACh. 29 - Prob. 29.1.7PACh. 29 - Prob. 29.1.8PACh. 29 - Prob. 29.1.9PACh. 29 - Prob. 29.1.10PA
Ch. 29 - Prob. 29.1.11PACh. 29 - Prob. 29.2.1RQCh. 29 - Prob. 29.2.2RQCh. 29 - Prob. 29.2.3RQCh. 29 - Prob. 29.2.4RQCh. 29 - Prob. 29.2.5PACh. 29 - Prob. 29.2.6PACh. 29 - Prob. 29.2.7PACh. 29 - Prob. 29.2.8PACh. 29 - Prob. 29.2.9PACh. 29 - Prob. 29.2.11PACh. 29 - Prob. 29.2.12PACh. 29 - Prob. 29.2.13PACh. 29 - Prob. 29.2.14PACh. 29 - Prob. 29.3.1RQCh. 29 - Prob. 29.3.2RQCh. 29 - Prob. 29.3.3RQCh. 29 - Prob. 29.3.4PACh. 29 - Prob. 29.3.5PACh. 29 - Prob. 29.3.6PACh. 29 - Prob. 29.3.7PACh. 29 - Prob. 29.3.9PACh. 29 - Prob. 29.3.10PACh. 29 - Prob. 29.4.2RQCh. 29 - Prob. 29.4.5PACh. 29 - Prob. 29.4.6PACh. 29 - Prob. 29.4.7PACh. 29 - Prob. 29.4.8PACh. 29 - Prob. 29.5.1RQCh. 29 - Prob. 29.5.2RQCh. 29 - Prob. 29.5.3RQCh. 29 - Prob. 29.5.4PACh. 29 - Prob. 29.5.5PACh. 29 - Prob. 29.5.6PACh. 29 - Prob. 29.5.7PACh. 29 - Prob. 29.1RDECh. 29 - Prob. 29.2RDECh. 29 - Prob. 29.3RDECh. 29 - Prob. 29.4RDECh. 29 - Prob. 29.5RDECh. 29 - Prob. 29.1CTE
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- What is current account deficit? List down, with detailed explanations, what causes current account deficit in the economy.arrow_forwardInternational Finance and the Exchange Rate - End of Chapter Problem At a family gathering, one of your cousins says, "We spend so much more on imports than other countries spend on our exports. It isn't fair, and we should raise tariffs on imports to reduce how much we buy from other countries." How might you explain to your cousin that current account deficits aren't necessarily a sign of economic troubles to come? Our current account deficits mean we obtain cheaper goods than we could otherwise. Most economists agree that an unequal bilateral trade balance is nothing to worry about. Contrary to common belief, the current account deficit does not suggest that we are living beyond our means. The flip side of the current account deficit is a financial account surplus, which could enhance future growth if the foreign spending it entails is directed toward high-quality investments.arrow_forwardWhat is the difference between a government deficit and a trade deficit ?arrow_forward
- Why is a nation with a current account deficit a borrower at that point in time?arrow_forwardBriefly explain whether each of the following statements is true or false. 8. An increase in national saving requires either a rise in investment or an increase in the capital account of the balance of payments.arrow_forward3. Briefly discuss the following statement, explaining what is right or wrong about it: "The average Current Account balance for all countries in the world was $500 billion $ in deficit, a sobering wake-up call to politicians." 11arrow_forward
- 2. Many countries seem to be worried that they have negative trade balances with China. Is such a trade deficit harmful or beneficial to these economies?arrow_forward(1) Consumption function: C = 100 + .8Y (2) Planned investment: I = 38 (3) Government spending: G = 75 (4) Exports: EX = 25 (5) Imports: IM = .05 Y4 (6) Disposable income: Y = Y- T (7) Taxes: T= 40 (8) Planned aggregate expenditure: AE = C+I+ G+ EX– IM (9) Definition of equilibrium income: Y = AEarrow_forwardVery short answer question What is meant by deficit in balance of payments?arrow_forward
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