Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Chapter 6, Problem 15E
To determine
Meaning of current account deficit in relation with domestic spending, production and borrowing using the
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A country finds itself in the following situation: a government budget deficit of $700; total domestic savings of $1470, and total domestic physical capital investment of $2100. According to the national saving and investment identity, what is the current account deficit?
Why is a nation with a current account deficit a borrower at that point in time?
The data in Table 12-1 end in 2011. Visit the U.S. Bureau of Economic Analysis at bea.gov to find information for the latest full calendar year (or for the last four quarters). What is the latest estimate of the size of the annual U.S. current account deficit in billions of dollars?
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- Explain the relationship between a current account deficit or surplus and the flow of funds.arrow_forwardA government decides to introduce an expenditure-switching measure to reduce a balance of trade deficit. Which of the following is an expenditure-switching measure? Pick a,b,c, or d A. A government subsidy to domestic producers B. An increase in income tax C. An increase in the rate of interest D.A decrease in state benefitsarrow_forwardJapan has run large current account surpluses for much of the past two decades, yet no one ever asks if these surpluses are sustainable. Why are surpluses treated differently than deficits?arrow_forward
- A government uses an expenditure-reducing measure to correct a balance of payments current account deficit. In the short term, what effect would this measure have on consumer expenditure and net exports? Pick a,b,c, or d A) consumer expenditure: increase & net exports: decrease B) consumer expenditure: decrease & net exports: decrease C) consumer expenditure: decrease & net exports: increase D) consumer expenditure: increase & net exports: increasearrow_forward5 List the types of policies that can lead to a current account deficitarrow_forwardAccording to David Hume’s theory of automatic price adjustment, countries experiencing current account deficits see price levels decrease, making them more competitive and increasing exports. That makes the current account deficit disappear.’. Critically explore this statement and provide examples to confirm or disprove itarrow_forward
- A net exports deficit will become a surplus if _______. A. the country appreciates its currency B. the government budget deficit is turned into a surplus and the private sector has a surplus C. private saving and government saving exceed private investment D. the private sector surplus adjusts to equal the government sector deficitarrow_forwardWhich government policy measure would be most likely to reduce a current account deficit and unemployment? Pick a,b,c, or d A. Decrease in income tax B. Increase in corporation tax C.Increase in the rate of interest D. Devaluationarrow_forward‘According to David Hume’s theory of automatic price adjustment, countries experiencing current account deficit see price levels decrease, making them more competitive and increasing exports. That makes the current account deficit disappear.’. Critically explore this statement and provide examples to confirm or disprove itarrow_forward
- A current account deficit is generally a result of: a large amount of U.S. purchases of foreign real estate. U.S. purchases of bonds issued by foreign corporations. imports exceeding exports. exports exceeding imports.arrow_forwardThe United States typically has a balance-of-trade deficit in its trade with which two countries? North Korea Japan China Iranarrow_forward‘According to David Hume’s theory of automatic price adjustment, countries experiencing current account deficit see price levels decrease, making them more competitive and increasing exports. That makes the current account deficit disappear.’. Critically explore this statement and provide examples to confirm or disprove it 'in details with example'.arrow_forward
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