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Unformatted text preview: assets purchased today . Thus, if positive shocks are viewed as largely (i) persistent or permanent , then the MPK effect dominates , expected returns rise, and a trade/current account deficit results. (ii) temporary , then the saving effect dominates , expected returns fall, and a trade/current account surplus results. The actual trade/current account balance is countercyclical. Figure 17.6 2. Other Events Causing Trade deficits (i) Harvest Failures => saving effect clearly dominates => drop in saving (people try to borrow to maintain consumption) => low k => high returns on assets (ii) Wars => temporary increase in taxation and borrowing by government => drop in national saving => low k => high returns on assets (iii) Positive Conditions for Long-term Growth => high MPK now and into the future => high returns on assets purchased today...
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- Spring '08