Question

A government finds itself in the following situation: a government budget deficit of $900; total domestic savings of $2000, and total domestic physical capital investment of $1300. According to the national saving and investment identity, if investment increases by $200 while the government budget deficit decreases by $100 and savings remain the same, what will happen to the current account balance

Answer 1

Answer:

The deficit increases from $200 to $300.

Explanation:

Current Account Balance before:

$2000 - $1300 - $900 = -$200.

Previously, the government had a current account deficit of $200.

Now,

$2000 - $1500 - $800 = -$300.

The government has a current account deficit of $300.

The current account deficit will increase by $100 to $300.