An investment analyst recommended that investors "gravitate toward the stronger currencies and countries that are running current-account and fiscal surpluses," such as South Korea and Taiwan.
a. Holding all other factors constant, would we expect a country that is running a government budget surplus to have a currency that is increasing in value or decreasing in value? Briefly explain.
b. Holding all other factors constant, would we expect a country that has a currency that is increasing in value to have an increasing or decreasing current account surplus? Briefly explain.
c. Is the combination of economic characteristics this analyst has identified likely to be commonly found among countries? Briefly explain.