1.Imagine that the U.S. economy finds itself in the following situation: a government budget deficit of $100...
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1.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.
a.(2 points)According to the national saving and investment identity, what will be the current account balance? Is it a trade deficit or trade surplus? Will international capital flow in or flow out?
b.(2 points)What will be the current account balance if investment rises by $50 billion, while the budget deficit and national savings remain the same?
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