Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Question
Chapter 5, Problem 8AP
To determine
Effect on current account and world real interest rate.
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“There has been a turnaround from the sizeable net outflows over the past two years when South African companies stepped up their efforts to internationalise their businesses.
The shift in direct investment trends made a small contribution to improving the financial account of South Africa’s balance of payments, which showed a surplus of 3.5% for the third quarter, up from 1.3% the previous quarter. The Reserve Bank’s quarterly bulletin shows that capital inflows were more than adequate to finance the deficit on the current account deficit of the balance of payments, which widened to 4.1% from a revised 2.9% in the third quarter.
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Indicate whether the following statements are true, false, or uncertain and explain why.
1. 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 T B1), but the current account in period 2 must be positive.
2. A country starts 2017 as a net creditor. The interest rate on its net asset position is 10 percent. That year, it runs a current account deficit. It follows that the trade balance in 2017 was also negative.
3. The fact that over the past quarter century the United States has run larger and larger current account deficits is proof that American household savings have been shrinking
Suppose that during 2004, country A had exports of goods of $50, imports of goods of $60, exports of servicces plus investment income receipts from abroad of $36, and imports of services plus the sending of payments of investment income abroad of $30. In addition, during 2004, country A made $15 of unilateral transfers abroad and received no unilateral transfers from abroad. Given this information, country A's "balance on current account" in 2004 was
a. a $19 deficit
b. a $10 deficit
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d. a $6 surplus
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