International Economics
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Dominick-Salvatore-International-Economics
(S-I) stays the same, do (X-M) and (G-T) move
together . In fact, from 1989 to 2001 and 2003 to 2010, the U.S. current account deficit and the U.S. budget deficit moved in opposite directions, with the first rising when the second was falling, and vice versa. The United States had the largest budget deficit (11.6 percent of GDP) in 2009 and the largest current account deficit (6.0 percent of GDP) in 2006. Salvatore c18.tex V2 - 11/02/2012 7:37 A.M. Page 586 586 Open-Economy Macroeconomics: Adjustment Policies ■ CASE STUDY 18-2 Continued % of GDP Current account balance Government budget –6.0 –5.6 –5.2 –4.8 –4.4 –4.0 –3.6 –3.2 –2.8 –2.4 –2.0 –1.6 –1.2 –0.8 –0.4 –0.0 0.4 0.8 1.2 1.4 1.6 1.8 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 –6.8 –6.4 –8.4 –8.0 –7.6 –7.2 –9.2 –8.8 –10.4 –10.0 –9.6 –11.2 –10.8 –11.6 FIGURE 18.6. U.S. Current Account and Budget Deficits as a Percentage of GDP, 1980–2012. From 1980 to 1989, 2001 to 2003, and 2010 to 2011, the U.S. current account deficit and the U.S. budget deficit, as a percentage of GDP, moved together as ‘‘twins,’’ but they moved in opposite direction in other years. Sources: Organization for Economic Cooperation Development, Economic Outlook (Paris: OECD, December 2012); D. Salvatore, ‘‘Twin Deficits in the G-7 Countries and Global Structural Imbalances,’’ Journal of Policy Modeling, September 2006, pp. 701–712; and D. Salvatore, ‘‘Global Imbalances,’’ Princeton Encyclopedia of the World Economy (Princeton, N.J.: Princeton University Press, 2008), pp. 536–541. 18.4 D Fiscal and Monetary Policies with Perfect Capital Mobility In Figure 18.7, we return to the initial equilibrium condition where all three markets are simultaneously in equilibrium at point E (as in Figures 18.2 and 18.3), but with perfect capital mobility (so that the BP curve is now horizontal at i = 5% prevailing on the world market). This means that a small nation can borrow or lend any desired amount at 5.0 percent. The condition was particularly relevant for small Western European nations as a result of the high capital market integration that took place during the 1980s and 1990s through the Eurocurrency market. In this extreme case, a small nation can reach the Salvatore c18.tex V2 - 11/02/2012 7:37 A.M. Page 587 18.4 Fiscal and Monetary Policies for Internal and External Balance with Fixed Exchange Rates 587 Y E IS' LM' E' E'' LM BP F IS Y E =1000 Y F =1500 5.0 6.25 3.75 0 i FIGURE 18.7. Fiscal and Monetary Policies with Perfect Capital Mobility and Fixed Exchange Rates. Starting from point E with domestic unemployment and external balance, and perfect capital mobility and a fixed exchange rate, the nation can reach the full-employment level of national income of Y F = 1500 with the expansionary fiscal policy that shifts the IS curve to the right to IS and with the LM curve shifting to the right to LM because of capital inflows that the nation is unable to neutralize. full-employment level of national income with equilibrium in its balance of payments by the appropriate fiscal policy and without any monetary policy. Indeed, in this world of perfect capital mobility and fixed exchange rates, monetary policy would be entirely ineffective. This can be shown as follows. Starting from point E in Figure 18.7, the small nation should pursue the expansionary fiscal policy that shifts the IS curve to the right to IS so that it crosses the horizontal Download 7.1 Mb. Do'stlaringiz bilan baham: |
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