Consider an economy that lasts for two periods, period 1 and period 2. Let TB1 denotes the trade bal-ance in period t, CA the current account balance in period 1, and Bf the country's net internationalinvestment position at the end of period 1. Let r denote the interest rate paid on assets held for oneperiod. Assume net international payments to employees, net unilateral transfers, and valuation changesare always equal to zero, so that in period t = 1,2:CA = r B_1 = TBandCA = B - B²_1%3DA) Which conditions are needed to show that B; = 0?%3DB) Suppose that the country runs perpetual trade deficits. What can you tell about the country'sinitial net foreign asset position? Justify your answer.C) If the country starts period 1 with no debt or assets, what can you say about the current accountin periods 1 and 2?

1. The only condition that is needed to show that B2* is zero is that the economy lasts only for two…

A) Which conditions are needed to show that B; = 0? B) Suppose that the country runs perpetual trade deficits. What can you tell about the country's initial net foreign asset position? Justify your answer. C) If the country starts period 1 with no debt or assets, what can you say about the current account in periods 1 and 2?

A) Which conditions are needed to show that B; = 0? B) Suppose that the country runs perpetual trade deficits. What can you tell about the country's initial net foreign asset position? Justify your answer. C) If the country starts period 1 with no debt or assets, what can you say about the current account in periods 1 and 2?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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