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The figure below illustrates the U.S. current and capital account balances since 1980. As you can see, the two accounts are basically mirror images of

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The figure below illustrates the U.S. current and capital account balances since 1980. As you can see, the two accounts are basically mirror images of each other. In 1991, both the current account and capital account balances were roughly zero. The increase in the current account deficit from 1991 to 2006, for example, is matched by an increase in the capital account surplus. To make things simple, assume that the current account includes only the value of exports and imports, and the capital account includes only payments for real and financial assets. Capital and current 1,000 account balances (billions of dollars) 800 600 400 Capital account 200 surplus 0 -200 Current account -400 deficit -600 -800 - 1 , 000 , T T T T T T T T T T T T T T T T T T T T T T TTT TTT TTT TTT1 1980 1985 1990 1995 2000 2005 2010 2015Part 1 (1 point) 0 See Hint Consider the year 1991, when the U.S. capital account and the current account balances were equal to zero. Suppose that Americans buy $10 mil lion worth of cars manufactured in Germany. If Germans use the $10 million to buy air conditioners manufactured in America, both the US. current account balance and the U.S. capital account balance are equal to $ million. Part 2 (2 points) 0 See Hint Suppose instead, the German holders of the $10 million in U.S. dollars purchase shares of General Electric stock. The U.S. current account balance would be equal to $ million, and the U.S. capital account balance would be equal to $ million. Part 3 (1 point) 0 See Hint Now consider the increase in the current account decit and the increase in the capital account surplus after 1991. One possible cause of this increase was a(n) v in domestic savings rates

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