Economics - Reading 10 - BB 11
Any help, thank you. I cant remember current account and capital account stuff that well. We’re given in text:
(X - M) = (S - I) + (T - G).
BB 11 asks what impact of a tax cut on capital and current account balances?
For current account they say a larger deficit due to larger government deficit (T - G smaller) and tax cut will lead to larger domestic investments (S - I smaller).
For capital accounts they say larger surplus due to selling assets abroad (X - M larger).
Is the left side of equation related to capital accounts and right side to current accounts? Is that all it is? Textbook says nothing about what is related to capital accounts and what to current. I want to be sure if on exam it comes up, I write about the correct thing.
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