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.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter20: Exchange Rates And The Macroeconomy

Section: Chapter Questions

Problem 2TY

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Q.1.10 Which of the following statements is correct? (2)(1) When a British firm invests in a bicycle manufacturing facility in South Africa,the amount concerned is entered as an inflow on the current account of theSouth African balance of payments.(2) When someone purchases a second‐hand car, the transaction is included inthe calculation of GDP in the year the sale took place.(3) A deficit on the current account of the balance of payments indicates thatthe country exported more than it imported during the period in question.(4) In the base year, the value of nominal GDP is equal to the value of real GDP.
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