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Q. Using an equation, explain why governments prefer to avoid excessive current account surpluses.
Answer: This pursue from the national income identity S = CA + I which says that total domestic savings S is divided among foreign asset accumulation CA and domestic investment I.
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Q. Explain the difference between the following two expressions: Y = C(Y d ) + I + G + CA(EP*/P, Y d ) and Y = C + I +G + CA Answer: The first expression corresponds to a
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Discuss the relationship between PPP and the Law of One Price. Answer: The law of one price is applies to individual commodities while Purchasing Power Parity applies to the g
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