1. Refer to the identity: 0 = (S 1) + (T G) + (- CAB) where CAB is the current account balance (X - M+FNI). A. If there is a fiscal surplus and the external sector has a deficit, is the private sector running a financial surplus or deficit? Would you conclude that the central government Treasury should expand spending and drive the fiscal position into deficit, since in the long run fiscal deficits are necessary for sustainability in the presence of persistent Current Account Deficits (negative CAB)? B. Using the sectoral balance identity shown above, consider the scenario in which there is a fiscal deficit and a current account deficit. Is the private balance in surplus or deficit? (You may make up a numerical example if it is helpful to explain your answer). 1. Refer to the identity: 0 = (S 1) + (T G) + (- CAB) where CAB is the current account balance (X - M+FNI). A. If there is a fiscal surplus and the external sector has a deficit, is the private sector running a financial surplus or deficit? Would you conclude that the central government Treasury should expand spending and drive the fiscal position into deficit, since in the long run fiscal deficits are necessary for sustainability in the presence of persistent Current Account Deficits (negative CAB)? B. Using the sectoral balance identity shown above, consider the scenario in which there is a fiscal deficit and a current account deficit. Is the private balance in surplus or deficit? (You may make up a numerical example if it is helpful to explain your answer)