Chapter 29

According to an article in the Economist, "countries with persistent current- account deficits tend to have higher real interest rates than surplus countries." What do high interest rates have to do with current account deficits??

Suppose that Federal Reserve policy leads to higher interest rates in the United States. a. How will this policy affect real GDP in the short run if the United States is a closed economy? b. How will this policy affect real GDP in the short run if the United States is an open economy? c. How will your answer to part (b) change if interest rates also rise in the countries that are the major trading partners of the United States?

Section 29.4 states that "the budget surpluses of the late 1990 s occurred at a time of then-record current account deficits." Holding everything else constant, what would the likely effect have been on domestic investment in the United States during those years if the current account had been balanced instead of being in deficit?

(Related to the Don't Let This Happen to You on page 1033) In 2016, Germany had a balance of trade surplus of \(€ 253\) billion and a current account surplus of \(€ 266\) billion. Explain how Germany's current account surplus could be larger than its trade surplus. In \(2016,\) what would we expect Germany's balance on the financial account to have been? Briefly explain.

An economist remarks, "In the 1960 s, using fiscal policy would have been a better way to stabilize the economy, but I believe that monetary policy is better today." What has changed about the U.S. economy that might have led the economist to this conclusion?

An article in the Wall Street Journal stated, "With the uncertainty lifting and economy doing well, the European Central Bank is more likely to taper the massive stimulus program that has helped keep pressure on the euro." a. What does the article mean by "pressure on the euro"? b. What is the article referring to by the "massive stimulus program" by the European Central Bank, and why would it keep pressure on the euro? c. If you ran a business in the euro zone that exports to the United States and Japan, would the tapering (cutting back) of the massive stimulus program help you? If you were a consumer in the euro zone, would the tapering of the program help you? Briefly explain.

Suppose the federal government increases spending without also increasing taxes. In the short run, how will this action affect real GDP and the price level in a closed economy? How will the effects of this action differ in an open economy?

Why might "the continued willingness of foreign investors to buy U.S. stocks and bonds and foreign companies to build factories in the United States" result in the United States running a current account deficit?

Briefly explain whether you agree with the following statement: "Because in 2016 national saving was a larger percentage of GDP in the United States than in the United Kingdom, domestic investment must also have been a larger percentage of GDP in the United States than in the United Kingdom."

A 2017 article in the Wall Street Journal noted, "President Donald Trump said Wednesday the U.S. dollar 'is getting too strong' and he would prefer the Federal Reserve keep interest rates low." Is there a connection between the president's two observations about economic policy? Briefly explain.