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Students Zone - Revision Questions

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Chapter 2

Question 1

Explain the difference between the current account, the capital account and the balance for official financing. Discuss why in theory the sum of the three accounts should be equal to zero.

Question 2

You are told that a country is running a current account deficit equivalent to $10 billion. Discuss what factors that you will need to consider before deciding whether this deficit is a policy problem.

Question 3

Do the record United States current account in 2006 of $800 billion matter? What are the possible mechanisms by which the deficit could be reduced?

Question 4

There is not necessarily any linkage between current account deficits and fiscal deficits. Discuss with reference to the USA and Japan or any two other OECD economies.

Question 5

"A current account deficit is not necessarily a bad thing." Discuss this statement.