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Chapter 23: Q. 13 (page 576)
What determines the size of a country鈥檚 trade deficit?
The amount of private and state savings, as well as domestic investment, determines a country's trade imbalance.
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If you observed a country with a rapidly growing trade surplus over a period of a year or so, would you be more likely to believe that the country's economy was in a period of recession or of rapid growth? Explain.
Occasionally, a government official will argue that a country should strive for both a trade surplus and a healthy inflow of capital from abroad. Is this possible?
If a country is running a government budget surplus, why is (T 鈥� G) on the left side of the saving-investment identity?
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 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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