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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Explain briefly whether each of the following would be more likely to lead to a higher level of trade for an economy, or a greater imbalance of trade for an economy.
a. Living in an especially large country
b. Having a domestic investment rate much higher than the domestic savings rate
c. Having many other large economies geographically nearby
d. Having an especially large budget deficit
e. Having countries with a tradition of strong protectionist legislation shutting out imports
Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of \(100 billion, total domestic savings of \)1,500 billion, and total domestic physical capital investment of \(1,600 billion. According to the national saving and investment identity, what will be the current account balance? What will be the current account balance if investment rises by \)50 billion, while the budget deficit and national savings remain the same?
What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?
The GDP for the United States is \(18,036 billion and its current account balance is –\)484 billion. What percent of GDP is the current account balance?
Does a trade surplus help to guarantee strong economic growth?
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