Chapter 23: Q. 41 (page 577)
Will nations that are more involved in foreign trade tend to have higher trade imbalances, lower trade imbalances, or is the pattern unpredictable?
Trade patterns are incalculable.
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Imagine that the economy of Germany finds itself in the following situation: the government budget has a surplus of of Germany’s GDP; private savings is of GDP, and physical investment is of GDP.
a. Based on the national saving and investment identity, what is the current account balance?
b. If the government budget surplus falls to zero, how will this affect the current account balance?
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?
A government official announces a new policy. The country wishes to eliminate its trade deficit, but will strongly encourage financial investment from foreign firms. Explain why such a statement is contradictory.
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.
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