Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Chapter 29, Problem 29.4.5PA
To determine
High interest rate and current account deficit.
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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.
Write a short essay (max 150 words) analyzing the following.
The US has been maintaining a current account deficit for a long time. It widened by
167.0billion, or 34.8percent, to647.2 billion in 2020.
Using the two-period model of the current account, explain why Covid-19 can cause this widening.
Using the data given in Table 1, compute the net exports. Briefly discuss your result and indicate whether there is a trade surplus or a trade deficit in the current account.
Chapter 29 Solutions
Economics (7th Edition) (What's New in Economics)
Ch. 29 - Prob. 29.1.1RQCh. 29 - Prob. 29.1.2RQCh. 29 - Prob. 29.1.3RQCh. 29 - Prob. 29.1.4PACh. 29 - Prob. 29.1.5PACh. 29 - Prob. 29.1.6PACh. 29 - Prob. 29.1.7PACh. 29 - Prob. 29.1.8PACh. 29 - Prob. 29.1.9PACh. 29 - Prob. 29.1.10PA
Ch. 29 - Prob. 29.1.11PACh. 29 - Prob. 29.2.1RQCh. 29 - Prob. 29.2.2RQCh. 29 - Prob. 29.2.3RQCh. 29 - Prob. 29.2.4RQCh. 29 - Prob. 29.2.5PACh. 29 - Prob. 29.2.6PACh. 29 - Prob. 29.2.7PACh. 29 - Prob. 29.2.8PACh. 29 - Prob. 29.2.9PACh. 29 - Prob. 29.2.11PACh. 29 - Prob. 29.2.12PACh. 29 - Prob. 29.2.13PACh. 29 - Prob. 29.2.14PACh. 29 - Prob. 29.3.1RQCh. 29 - Prob. 29.3.2RQCh. 29 - Prob. 29.3.3RQCh. 29 - Prob. 29.3.4PACh. 29 - Prob. 29.3.5PACh. 29 - Prob. 29.3.6PACh. 29 - Prob. 29.3.7PACh. 29 - Prob. 29.3.9PACh. 29 - Prob. 29.3.10PACh. 29 - Prob. 29.4.2RQCh. 29 - Prob. 29.4.5PACh. 29 - Prob. 29.4.6PACh. 29 - Prob. 29.4.7PACh. 29 - Prob. 29.4.8PACh. 29 - Prob. 29.5.1RQCh. 29 - Prob. 29.5.2RQCh. 29 - Prob. 29.5.3RQCh. 29 - Prob. 29.5.4PACh. 29 - Prob. 29.5.5PACh. 29 - Prob. 29.5.6PACh. 29 - Prob. 29.5.7PACh. 29 - Prob. 29.1RDECh. 29 - Prob. 29.2RDECh. 29 - Prob. 29.3RDECh. 29 - Prob. 29.4RDECh. 29 - Prob. 29.5RDECh. 29 - Prob. 29.1CTE
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- Explain the relationship between a current account deficit or surplus and the flow of funds.arrow_forwardWhat is current account deficit? List down, with detailed explanations, what causes current account deficit in the economy.arrow_forward(a) There are two countries in the world, Australia and Japan. Suppose that the central bank of Australia lowers the real interest rate, while the central bank of Japan raises the real interest rate. In this case, the nominal exchange rate (Yen/Dollar) increases. Answer true or false. Please briefly explain your answer. (b) Argentina is an open economy. Suppose that Argentina fixes the value of their currency to US dollars. If Argentina experiences hyperinflation, it can stabilize inflation by using its monetary policy freely. Answer true or false. Please briefly explain your answer.arrow_forward
- Briefly explain any one component of the capital accountarrow_forwardWhy is a nation with a current account deficit a borrower at that point in time?arrow_forward3. Briefly discuss the following statement, explaining what is right or wrong about it: "The average Current Account balance for all countries in the world was $500 billion $ in deficit, a sobering wake-up call to politicians." 11arrow_forward
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- What does this graph show and what is the relationship between real exchange rate and net exports?arrow_forwardIn your macroeconomic lectures you are often told that exchange rates and interest rates are important for macroeconomic decision-making. How does an increase in Japan’s government budget deficit affect each of the following? The real interest rate in the short run in Japan. Explain. Private domestic investment in plant and equipment in Japan. Draw a correctly labeled graph of the foreign exchange market for the euro, and show the effect of the change in the real interest rate in Japan from part (a)(i) on each of the following. Supply of euros. Explain. Yen price of the euro To reverse the change in the yen price of the euro identified in part (b) (ii), should the European Central Bank buy or sell euros in the foreign exchang market? Explain.arrow_forwardIn an open economy, it is impossible to have national saving equal to domestic investment.Answer true, false, or uncertain. Please briefly explain your answer.arrow_forward
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