As will be analyzed later a current account deficit

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as will be analyzed later, a current account deficit means that the deficit country’s spending is more than its income, thereby resulting in international borrowing . 6/16
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Implications of U.S. Current Account Deficits A current account deficit may not be a sign of weakness: in the U.S., the economic boom of the 1990s increased the demand for imports, while sluggish growth abroad limited the expansion o ff U.S. exports However, everyone agrees the U.S. deficit is not sustainable in the long term: as will be analyzed later, a current account deficit means that the deficit country’s spending is more than its income, thereby resulting in international borrowing . 6/16
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Implications of U.S. Current Account Deficits A current account deficit may not be a sign of weakness: in the U.S., the economic boom of the 1990s increased the demand for imports, while sluggish growth abroad limited the expansion o ff U.S. exports However, everyone agrees the U.S. deficit is not sustainable in the long term: as will be analyzed later, a current account deficit means that the deficit country’s spending is more than its income, thereby resulting in international borrowing . 6/16
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Understanding National Accounts Definitions of Variables GDP Gross Domestic Product GNP Gross National Product C Personal Consumption Expenditure I Gross Domestic Private Investment G Government Purchases of Goods and Services X Exports of Goods and Services M Imports of Goods and Services CA Current Account Balance S Private Savings (from households & Firms) T Net Taxes (Taxes paid minus Transfer payments received) 7/16
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Understanding National Accounts Accounting Relationships GDP = C + I + G + (X - M) GNP = GDP + (net invest. income + net transfers) GNP = (C + I + G) + (X - M + net invest. income + net transfers) GNP = C + I + G + CA —> CA = GNP - (C + I + G) GNP = C + S + T C + I + G + CA = C + S + T I + G + CA = S + T S + (T - G) = I + CA [S + (T - G)] - I = CA National Saving < Domestic Investment —> CA < 0 National Saving > Domestic Investment —> CA > 0 8/16
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Understanding National Accounts Accounting Relationships GDP = C + I + G + (X - M) GNP = GDP + (net invest. income + net transfers) GNP = (C + I + G) + (X - M + net invest. income + net transfers) GNP = C + I + G + CA —> CA = GNP - (C + I + G) GNP = C + S + T C + I + G + CA = C + S + T I + G + CA = S + T S + (T - G) = I + CA [S + (T - G)] - I = CA National Saving < Domestic Investment —> CA < 0 National Saving > Domestic Investment —> CA > 0 8/16
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Understanding National Accounts Accounting Relationships GDP = C + I + G + (X - M) GNP = GDP + (net invest. income + net transfers) GNP = (C + I + G) + (X - M + net invest. income + net transfers) GNP = C + I + G + CA —> CA = GNP - (C + I + G) GNP = C + S + T C + I + G + CA = C + S + T I + G + CA = S + T S + (T - G) = I + CA [S + (T - G)] - I = CA National Saving < Domestic Investment —> CA < 0 National Saving > Domestic Investment —> CA > 0 8/16
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Understanding National Accounts Accounting Relationships GDP = C + I + G + (X - M) GNP = GDP + (net invest. income + net transfers) GNP = (C + I + G) + (X - M + net invest. income + net transfers) GNP = C + I + G + CA —> CA = GNP - (C + I + G) GNP = C + S + T C + I + G + CA = C + S + T I + G + CA = S + T S + (T - G) = I + CA [S + (T - G)] - I = CA National Saving < Domestic Investment —> CA < 0 National Saving > Domestic Investment —> CA > 0 8/16
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Understanding National Accounts
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  • Fall '08
  • Goode,M
  • Economics, current account

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