Macroeconomics (9th Global Edition)
9th Edition
ISBN: 9780134141534
Author: Andrew B. Abel, Ben Bernanke
Publisher: Pearson Global Edition
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Chapter 5, Problem 6RQ
To determine
To explain: The changes in the desired saving and desired investment that results in large current account deficits and the factors that result in these changes.
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A government finds itself in the following situation: a government budget deficit of $900; total domestic savings of $2000, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment increases by $200 while the government budget deficit decreases by $100 and savings remain the same, what will happen to the current account balance?
For a small open economy with production and investment, what are the immediate effects on output and the current account when there is a rise in the world interest rate?
Suppose in the goods market equilibrium of an open economy, saving is $6 billion, and investment is $8 billion. Assume there is no measurement error. Then capital and financial account balance is equal to:
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Macroeconomics (9th Global Edition)
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- The GDP for the United States is 18,036 billion and its current account balance is 484 billion. What percent of GDP is the current account balance?arrow_forwardExplain why a nation with a current account deficit is a net external borrower, while a nation with a current account surplus is a net external lender.arrow_forwardImagine that the U.S. economy finds itself in the following situation: a government budget deficit of $100 billion, total domestic savings of $1,500 billion, and total domestic physical capital investment of $1,600 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 $50 billion, while the budget deficit and national savings remain the same?arrow_forward
- Other things equal, an increase in government purchases of goods and services pushes the trade balance toward______(Surplus/Deficit) and causes the currency to _________ (Appreciate/Depreciate).arrow_forwardWhat are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if home expected future marginal productivity of capital increases? What are the effects on the world equilibrium interest rate, national saving, investment, and the current account balance in each country if foreign country experiences a temporary adverse supply shock? Just need the graphs, and the effect on each variablearrow_forwardNow consider a small open economy, assuming domestic output is held constant and the country initially has a current account deficit. Explain the impact of an increase in government spending on the current account using both words and graphs.arrow_forward
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