Finance Questions 5 2-3

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1. EXPLAIN whether the following economic changes are consistent with the twin-deficit identity. Assume ceteris paribus, meaning all other variables in the identity remain fixed.

A. A $10 billion increase in the government budget deficit and a $10 billion increase in the current account deficit.

B. A $50 billion decrease in the government budget deficit and a $50 billion increase in private investment.

C. A $10 billion increase each in the government budget surplus, the current account deficit, private savings and private investment.

D. A $30 billion increase in the current account surplus and a $30 billion increase in the government budget deficit.

 

International Finance Theory and Policy - Chapter 5: Last Updated on 1/5/08