he relation of foreign debt/GDP of country Indebted is 60%, given that the greatest part is sovereign debt (i.e., it represents government obligations with foreign investors). Given that the foreign investors are concerned about a possible default by the Indebted government, the interest rate on the debt is 10%. Assume that product growth for Indebted is only 1% and that the capital-account balance is equal to zero. a. Compute the current-account balance Indebted needs to maintain the debt/GDP ratio constant. b. The deficit in current account for Indebted is 6.8% of GDP. Calculate the lack in current resources and interpret the result.
he relation of foreign debt/GDP of country Indebted is 60%, given that the greatest part is sovereign debt (i.e., it represents government obligations with foreign investors). Given that the foreign investors are concerned about a possible default by the Indebted government, the interest rate on the debt is 10%. Assume that product growth for Indebted is only 1% and that the capital-account balance is equal to zero. a. Compute the current-account balance Indebted needs to maintain the debt/GDP ratio constant. b. The deficit in current account for Indebted is 6.8% of GDP. Calculate the lack in current resources and interpret the result.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter23: The International Trade And Capital Flows
Section: Chapter Questions
Problem 44P: Imagine that the U.S. economy finds itself in the following situation: a government budget deficit...
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The relation of foreign debt/GDP of country Indebted is 60%, given that the greatest part is sovereign debt (i.e., it represents government obligations with foreign investors). Given that the foreign investors are concerned about a possible default by the Indebted government, the interest rate on the debt is 10%. Assume that product growth for Indebted is only 1% and that the capital-account balance is equal to zero.
a. Compute the current-account balance Indebted needs to maintain the debt/GDP ratio constant.
b. The deficit in current account for Indebted is 6.8% of GDP. Calculate the lack in current resources and interpret the result.
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