Twin Deficits

Twin Deficits - . US Balance Of Payments, 2008 CURRENT...

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THE TWIN DEFICITS
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2 The Relationship between the Budget Deficit and the Trade Deficit National Savings S = private saving + public saving A rising budget deficit means lower public saving and lower national savings (assuming no change in private saving). The GDP equation Y = C + I + G + NX But Y C G = I + NX, so S = I + NX A lower national savings means I or NX must be lower. Assuming I stays the same, then NX must be lower, ie. a larger trade deficit
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Unformatted text preview: . US Balance Of Payments, 2008 CURRENT ACCOUNT (billions of dollars) Net Exports -696 Net Income on Investments 118 Net Transfers -128 BALANCE ON CURRENT ACCOUNT -706 FINANCIAL ACCOUNT Increase in foreign holdings of assets in US 534 Increase in US holdings of assets in foreign countries -1 BALANCE ON FINANCIAL ACCOUNT 533 CAPITAL ACCOUNT BALANCE ON CAPITAL ACCOUNT 1 Statistical Discrepancy 172 BALANCE OF PAYMENTS 0...
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Twin Deficits - . US Balance Of Payments, 2008 CURRENT...

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