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Chapter 23: Q. 36 (page 577)

Is it better for your country to be an international lender or borrower?

Short Answer

Expert verified

It is better for your country to be an international lender.

Step by step solution

01

Step 1. International capital movement

The movement or of financial assets from one country to some other both for the adjustment of BOP disequilibrium or for increasing the production frontier in a country denotes international capital flow or movement.

02

Step 2. Explanation

It is better for a country to be a lender because a lender would have a trade surplus. Because the trade balance and the international flow of financial capital are so closely led, trade surpluses result in inflows of the domestic currency. The inflow of domestic currency from surplus product exports, which is used by the country for lending purposes. The lending country can also receive interest payments on the amount lent.

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Most popular questions from this chapter

What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?

If foreign investors buy more U.S. stocks and bonds, how would that show up in the current account balance?

Some economists warn that the persistent trade deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.

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.

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?
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