Author Question: Use the U.S. current account balance and international investment position to explain the ... (Read 123 times)

drink · **on:** Jun 30, 2018

Use the U.S. current account balance and international investment position to explain the relationship between the current account balance and the international investment position.

What will be an ideal response?

Question 2

All of the following issues have been discussed as options for reforming the international financial architecture EXCEPT

A) how high an interest rate the lender of last resort should charge when it makes loans.
B) the length of the payback period.
C) the size of the loans.
D) if the lender of last resort (i.e., the IMF) should consult and collaborate with other international institutions such as the United Nations and the WTO.

kescobar@64 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

For many years, the U.S. international investment position was positive. The large current account deficits of the 1980s, 1990s, and 2000s have eroded the United States' investment position from a positive 288.6 billion in 1983 to zero in 1989, and negative since then. Each year a country experiences a current account deficit, foreigners acquire more assets inside its boundaries than its residents acquire abroad, and the international investment position shrinks further. Thus a current account deficit in a given year does not imply that the international investment position is negative, but sustained current account deficits must eventually lead to a negative international investment position.

Answer to Question 2

D