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Chapter 10: Q 40. (page 267)

What is more important, a country鈥檚 current

account balance or GDP growth? Why?

Short Answer

Expert verified

GDP growth is more important.

Step by step solution

01

Step 1. Definition

Gross domestic product refers to te value of all the finished goods and services manufactured in a fixed time period.

02

Step 2. Explanation

Because GDP represents the health of an economy so it is more important. Higher GDP means improvement in the economy, high employment, higher rates of wages and in negative GDP opposite of this will happen.

The current account balance tells us that the economy is in trade surplus or trade deficit but it doesn鈥檛 talk about the health of the economy. So that鈥檚 why GDP growth is comparably more important than the current account balance.

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Most popular questions from this chapter

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.

If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?

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.

What is the difference between trade deficits and balance of trade?

When is a trade deficit likely to work out well for an economy? When is it likely to work out poorly?
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