From Mexico's Balance of Payments:
The Current Account Balance (CAB) + the Financial Account Balance (FAB) = 0.
The CAB, (X - IM) = (S - I) + (T - G), is the measure of net domestic savings.
The FAB is the measure of net international foreign borrowing or lending.
Suppose Mexico has:
Private savings: S = $750
Private investment: I = $750
Government spending: G = $200
Government net taxes: T = $200
a) What is the current and financial account balance?
The current account balance would be $0 and the financial account balance would be $0.
b) Suppose, other things being equal, private sector savings were to decrease by $40 to $710.
Note: Keep $0 for the second part if you think there is no change.
The current account balance would (select one) by $0 and the financial account balance would (select one) by $0.
c) Alternatively, with initial private savings of $750, other things being equal, suppose government spending decreased by $20, creating a budget surplus
Note: Keep $0 for the second part if there is no change.
The current account balance would (select one) by $0 and the financial account balance would (select one) by $0.
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SUBMIT AND MARK