The United States has a current account deficit equal to about 3.5 percent of GDP. Suppose that the US Government decides that it wants toreduce that to about 2.0 percent of GDP.A current account deficit means that the US is aFor the US current account balance toConsequently one of these things must happen:US investmentprivate savingsnet lender toexports and importsgovernment expenditureUS domestic savingsmust rise; and/ormust fall.be balancedrisenet taxesgovernment savingsnet foreign incomethe rest of the world.(as they wish it to) then rest of the world savings mustnet borrower fromnet exporter of goods and services toMacBook Airbe less than US savingsfallnet importer of goods and services from

Answered: The United States has a current account…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The United States has a current account deficit equal to about 3.5 percent of GDP. Suppose that the US Government decides that it wants to
reduce that to about 2.0 percent of GDP.
A current account deficit means that the US is a
For the US current account balance to
Consequently one of these things must happen:
US investment
private savings
net lender to
exports and imports
government expenditure
US domestic savings
must rise; and/or
must fall.
be balanced
rise
net taxes
government savings
net foreign income
the rest of the world.
(as they wish it to) then rest of the world savings must
net borrower from
net exporter of goods and services to
MacBook Air
be less than US savings
fall
net importer of goods and services from

Expert Solution

Step 1

Gross Domestic Product (GDP) is defined as the final value of all goods and services produced during a given period in an economy. GDP is calculated in three ways using production, expenditure and incomes.

Given,

$U . S h a s a c u r r e n t a c c o u n t d e f i c i t w h i c h i s e q u a l t o 3.5 % o f t h e G D P U . S g o v e r n m e n t w a n t s t o r e d u c e a b o u t 2 % o f G D P .$

A Current Account Balance is defined as an economy's record of its international transactions with the rest of the world.

A Current Account Surplus is defined as a positive current account balance which means that the economy is a lender to the rest of the world.

A Current Account Deficit is defined as a negative current account balance which means that the economy is a debtor to the rest of the world.

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