Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 18, Problem 18.4.6PA
To determine
Domestic investment.
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You have the following annual figures for the New Zealand economy.
Investment expenditure $40.6 billion Net Exports $3.6 billion Net Foreign Income -$9.5 billion
The current account balance is equal to $____billon (use 1 d.p. and a negative sign if the balance you have calculated is a deficit).
New Zealand domestic savings is equal to $____billon (use 1 d.p.).
Suppose that the government introduces a policy that bans foreign investment in New Zealand. If that happens then (everything else held constant) we would expect to see the current account balance
-rise
-remain the same.
-fall
-become harder to predict
Suppose that along with the above policy, the government also wishes to see investment levels maintained. If that is to occur, what else must be happening in the economy?
- The Government must raise taxes.
- Firms must be offered incentives to invest.
- New…
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?
Chapter 18 Solutions
Macroeconomics (7th Edition)
Ch. 18 - Prob. 18.1.1RQCh. 18 - Prob. 18.1.2RQCh. 18 - Prob. 18.1.3RQCh. 18 - Prob. 18.1.4PACh. 18 - Prob. 18.1.5PACh. 18 - Prob. 18.1.6PACh. 18 - Prob. 18.1.7PACh. 18 - Prob. 18.1.8PACh. 18 - Prob. 18.1.9PACh. 18 - Prob. 18.1.10PA
Ch. 18 - Prob. 18.1.11PACh. 18 - Prob. 18.2.1RQCh. 18 - Prob. 18.2.2RQCh. 18 - Prob. 18.2.3RQCh. 18 - Prob. 18.2.4RQCh. 18 - Prob. 18.2.5PACh. 18 - Prob. 18.2.6PACh. 18 - Prob. 18.2.7PACh. 18 - Prob. 18.2.8PACh. 18 - Prob. 18.2.9PACh. 18 - Prob. 18.2.11PACh. 18 - Prob. 18.2.12PACh. 18 - Prob. 18.2.13PACh. 18 - Prob. 18.2.14PACh. 18 - Prob. 18.3.1RQCh. 18 - Prob. 18.3.2RQCh. 18 - Prob. 18.3.3RQCh. 18 - Prob. 18.3.4PACh. 18 - Prob. 18.3.5PACh. 18 - Prob. 18.3.6PACh. 18 - Prob. 18.3.7PACh. 18 - Prob. 18.3.9PACh. 18 - Prob. 18.3.10PACh. 18 - Prob. 18.4.2RQCh. 18 - Prob. 18.4.5PACh. 18 - Prob. 18.4.6PACh. 18 - Prob. 18.4.7PACh. 18 - Prob. 18.4.8PACh. 18 - Prob. 18.5.1RQCh. 18 - Prob. 18.5.2RQCh. 18 - Prob. 18.5.3RQCh. 18 - Prob. 18.5.4PACh. 18 - Prob. 18.5.5PACh. 18 - Prob. 18.5.6PACh. 18 - Prob. 18.5.7PACh. 18 - Prob. 18.1RDECh. 18 - Prob. 18.2RDECh. 18 - Prob. 18.3RDECh. 18 - Prob. 18.4RDECh. 18 - Prob. 18.5RDECh. 18 - Prob. 18.1CTE
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- People sometimes worry that American trade with other countries will lead to large U.S. trade deficits and the movement of massive amounts of American capital out of the country. This worry is unfounded because countries cannot a) have both current account and financial account deficits at the same time. b) increase savings at the same time that a trade deficit grows. c) spend more than they earn. d) invest more than they save.arrow_forwardExplain the relationship between a current account deficit or surplus and the flow of funds.arrow_forwardA country has been experiencing a persistent deficit in its current account balance due to high levels of imports compared to exports, along with significant outflows of income payments and transfers. To address this issue, the government is considering implementing a range of policies, including devaluation of the currency, imposition of tariffs, and promotion of export industries. The goal is to correct the balance of payments imbalance and improve the country's international financial position. The question is: In this scenario, the primary objective of the government's policies is to: A) Increase the country's reliance on imports B) Decrease foreign investment in the country C) Correct the balance of payments deficit D) Eliminate all forms of international tradearrow_forward
- Explain how changes in various economic factors affect a country's current account balance.arrow_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_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_forward
- International 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_forwardSuppose that during a recent year for the United States, merchandise imports were $2 trillion, unilateral transfers were a net outflow of $0.2 trillion, service exports were $0.2 trillion, service imports were $0.1 trillion, and merchandise exports were $1.4 trillion. What was the merchandise trade deficit? What was the balance on goods and services? What was the current account balance?arrow_forwardQ.1.10 which of the following statements is correct? (1) When a British firm invests in a bicycle manufacturing facility in South Africa, the amount concerned is entered as an inflow on the current account of the South African balance of payments. (2) When someone purchases a second-hand car, the transaction is included in the calculation of GDP in the year the sale took place. (3) A deficit on the current account of the balance of payments indicates that the country exported more than it imported during the period in question. (4) In the base year, the value of nominal GDP is equal to the value of real GDP.arrow_forward
- You have the following annual figures for the New Zealand economy. Investment expenditure $42.5 billion Government savings -$1.7 billion The current account balance is not zero. In fact the current account deficit is $6.0 billion. What is New Zealand's actual private sector savings figure? $____billion (use 1 d.p.).arrow_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_forwardThe following figure shows the Current Account Balance (similar to the Trade Balance) of Japan (black line) and China (red line). During their growth periods (1980s for Japan and 2000s for China), were these countries net savers or borrowers? What are some ways that the governments intervened in the foreign exchange market to keep their BOP from adjusting towards 0? 12.5 10.0 7.5 5.0 2.5 0.0 -5.0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Organization for Economic Co-operation and Development fred.stlouisfed.org US $, Sum Over Component Sub-periods/10000000O000arrow_forward
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