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3. Effects of a government budget deficit

Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving,

domestic investment, and net capital outflow in this economy, where the currency is the U. S. Dollar. Assume that the economy is currently experiencing a balanced government budget.

Respuesta :

The relationship between net capital outflow and net exports implies that the economy is experiencing a trade deficit.

What is a trade deficit?

A trade deficit simply means a situation when the value of the import is more than the value of the export in the country.

In this case, the relationship between net capital outflow and net exports implies that the economy is experiencing a trade deficit.

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