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Chapter 10: Q 34. (page 267)
If a country is a big exporter, is it more exposed to
global financial crises?
The country may be more exposed to financial crisis.
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In 2001, the United Kingdom's economy exported
goods worth 拢192 billion and services worth another 拢77 billion. It imported goods worth 拢225 billion and services worth 拢66 billion. Receipts of income from abroad were 拢140 billion while income payments going abroad were 拢131 billion. Government transfers from the United Kingdom to the rest of the world were 拢23 billion, while various U.K government agencies received payments of 拢16 billion from the rest of the world.
a. Calculate the U.K. merchandise trade deficit for
2001.
b. Calculate the current account balance for 2001.
c. Explain how you decided whether payments on
foreign investment and government transfers
counted on the positive or the negative side of
the current account balance for the United
Kingdom in 2001.
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?
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.
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
What determines the size of a country鈥檚 trade deficit?
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