Chapter 23: Q. 15 (page 576)
Why does a recession cause a trade deficit to increase?
During a recession, incomes fall, and consumers buy fewer goods, including imports which leads to a increase in trade deficit.
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Many think that the size of a trade deficit is due to a lack of competitiveness of domestic sectors, such as autos. Explain why this is not true.
If a country is a big exporter, is it more exposed to global financial crises?
Table 10.7 provides some hypothetical data on macroeconomic accounts for three countries represented by A, B, and C and measured in billions of currency units. In Table 10.7, private household saving is SH, tax revenue is T, government spending is G, and investment spending is I.
| A | B | C | |
| SH | 700 | 500 | 600 |
| T | 00 | 500 | 500 |
| G | 600 | 350 | 650 |
| I | 800 | 400 | 450 |
Table 10.7 Macroeconomic Accounts
a. Calculate the trade balance and the net inflow of
foreign saving for each country.
b. State whether each one has a trade surplus or
deficit (or balanced trade).
c. State whether each is a net lender or borrower
internationally and explain.
Does a trade surplus help to guarantee strong economic growth?
If domestic investment increases, and there is no change in the amount of private and public savings, what must happen to the size of the trade deficit?
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