Understanding the Determinants of the Trade and Current Account Balance This approach views trade balances-and their associated flows of financial capital-in the context of the overall levels of savings and financial investment in the economy. The national saving and investment identity provides a useful way to understand the determinants of the trade and current account balance. In a nation’s financial capital market, the quantity of financial capital supplied at any given time must equal the quantity of financial capital demanded for purposes of making investments. What is on the supply and demand sides of financial capital? See the following Clear It Up feature for the answer to this question. What comprises the supply and demand of financial capital?Ī country’s national savings is the total of its domestic savings by household and companies (private savings) as well as the government (public savings). If a country is running a trade deficit, it means money from abroad is entering the country and is considered part of the supply of financial capital.
The demand for financial capital (money) represents groups that are borrowing the money. Businesses need to borrow to finance their investments in factories, materials, and personnel.
When the federal government runs a budget deficit, it is also borrowing money from investors by selling Treasury bonds. So both business investment and the federal government can demand (or borrow) the supply of savings. There are two main sources for the supply of financial capital in the U.S. There are also two main sources of demand for financial capital in the U.S.Įconomy: saving by individuals and firms, called S, and the inflow of financial capital from foreign investors, which is equal to the trade deficit (M – X), or imports minus exports. This national savings and investment identity can be expressed in algebraic terms: economy: private sector investment, I, and government borrowing, where the government needs to borrow when government spending, G, is higher than the taxes collected, T. Summarize the answer: Private domestic savings needs to rise by $100 billion, to a total of $600 billion, for the two sides of the equation to remain equal (–100 = –100). 1 Do to automatic stabilizers when the nation’s total income rises government transfer payments?.2 How do automatic stabilizers work quizlet?.3 What happens to government transfer payments during a recession?.4 Why is unemployment compensation an automatic stabilizer?.5 How will automatic stabilizers affect the economy during a recession?.6 How do automatic stabilizers help the economy?.7 What would be considered an automatic stabilizer?.8 Which of the following are examples of automatic stabilizers quizlet?.9 How will automatic stabilizers affect the economy during a recession quizlet?.10 What is the effect on the government budget if the economy falls into a recession?.11 How do transfer payments affect the economy?.12 Are transfer payments government spending?.13 Is Social Security an automatic stabilizer?.14 Is Medicaid an automatic stabilizer?.15 Which is an example of an automatic stabilizer as real GDP?ĭo to automatic stabilizers when the nation’s total income rises government transfer payments?.How do automatic stabilizers work quizlet? Question: Due To Automatic Stabilizers, When The Nation’s Total Income Rises, Government Transfer Payments Multiple Choice And Tax Revenues Decrease.
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