According to the National Savings and Investment Identity framework, if the US runs a $250 billion trade deficit with another country: 1. private savings from US households and firms also equals $250 billion. 2, inflows of foreign investment from that country also equal $250 billion. 3. tax revenue in the US must increase by $250

According to the National Savings and Investment Identity framework, if the US runs a $250 billion trade deficit with another country: 1. private savings from US households and firms also equals $250 billion. 2, inflows of foreign investment from that country also equal $250 billion. 3. tax revenue in the US must increase by $250

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter31: The Impacts Of Government Borrowing

Section: Chapter Questions

Problem 4SCQ: Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a...

See similar textbooks

Similar questions

Under what conditions will a larger budget deficit cause a trade deficit?
For each of the following, indicate which type of government spending would justify a budget deficit and which would not. Increased federal spending on Medicare Increased spending on education Increased spending on the space program Increased spending on airports and air traffic control
When is a trade deficit likely to work out well for an economy? When is it likely to work out poorly?
What determines the size of a countrys trade deficit?
Describe how a plan for reducing the government deficit might affect a college student, a young professional, and a middle-income family.
Why does a recession cause a trade deficit to increase?
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.
Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70, how are the other terms in the national saving and investment identity affected?
If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?
4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) QUANTITY OF DOLLARS Given this change, the dollar Supply Change due to a tariff Demand Fill in the following table with the effect of a tariff on the following items: Demand Supply (?) Demand for Loanable Funds Real Interest Rate National Saving Net…
4. Analyzing the effects of a trade deficit You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a tariff on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. Supply IN Demand QUANTITY OF DOLLARS REAL EXCHANGE RATE (Units of foreign currency per dollar) Demand Supply ?
4. Analyzing the effects of a trade deficit Suppose the U.S. government has just hired you to analyze the following scenario. Assume the U.S. agricultural industry grows concerned about the amount of fresh fruit imports to the United States, a practice that harms domestic producers. Industry experts claim that implementing a tariff on imports would reduce the size of the trade deficit. Complete the following exercise in order to help you analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Shift the demand curve, the supply curve, or both to show what would happen if the government decided to implement the tariff. REAL EXCHANGE RATE (Units of foreign currency per dollar) Supply QUANTITY OF DOLLARS Demand Demand -0- Supply Ⓡ