*A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if private savings fall to zero, what will happen to this country’s current account balance?
A. deficit increases from 2% to 32% of GDP
B. deficit increases from 1% to 31% of GDP
C. surplus of 1% drops to deficit of 29% of GDP
D. surplus of 2% drops to deficit of 28% of GDP
Answer:B
*A country finds itself in the following situation: the government budget surplus is 2% of its GDP; private savings is 30% of GDP; and physical investment is 33% of GDP. Based on the national saving and investment identity, if private savings fall to zero, what will happen to this country’s current account balance?
A. deficit increases from 2% to 32% of GDP B. deficit increases from 1% to 31% of GDP C. surplus of 1% drops to deficit of 29% of GDP D. surplus of 2% drops to deficit of 28% of GDP
Explanation: Type: Multiple Choice