Question 1: International interdependencies In a two-country world with countries A and B, A has an annual current account (CA) deficit of 100 billion Dollars. The national account equations of both countries are (YA = CA + IA + XA-MA+ GA-TA) and (YB = CB+ IB + XB-MB + GB-TB). a) An economist remarks that the current account position of B is equal to the net international borrowing of the private and public sectors in A. Is he right? Demonstrate your answer using the national income components of A. b) After elections in A, the new government of A promotes smaller net government spending to become more competitive, by stimulating net exports and achieving a current account surplus. To achieve this, which changes in the national account equation is the government hoping for, and are these changes to be expected? c) Another economist states that "The success of this policy depends on the behavior of international lenders and investors". Is she right? Explain your answer.

Question 1: International interdependencies In a two-country world with countries A and B, A has an annual current account (CA) deficit of 100 billion Dollars. The national account equations of both countries are (YA = CA + IA + XA-MA+ GA-TA) and (YB = CB+ IB + XB-MB + GB-TB). a) An economist remarks that the current account position of B is equal to the net international borrowing of the private and public sectors in A. Is he right? Demonstrate your answer using the national income components of A. b) After elections in A, the new government of A promotes smaller net government spending to become more competitive, by stimulating net exports and achieving a current account surplus. To achieve this, which changes in the national account equation is the government hoping for, and are these changes to be expected? c) Another economist states that "The success of this policy depends on the behavior of international lenders and investors". Is she right? Explain your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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