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| Teaching Since: | May 2017 |
| Last Sign in: | 399 Weeks Ago |
| Questions Answered: | 66690 |
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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
The world is made up of only two large countries: Eastland and Westland. Westland is running a large current account deficit and often appeals to Eastland for help in reducing this current account deficit. Currently, the government of Eastland purchases $10 billion of goods and services, and all of these goods and services are produced in Eastland. The finance minister of Eastland proposes that the government purchase half of its goods from Westland. Specifically, the government of Eastland will continue to purchase $10 billion of goods, but $5 billion will be from Eastland and $5 billion will be from Westland. The finance minister gives the following rationale: “Both countries produce identical goods so it does not really matter to us which country produced the goods we purchase. Moreover, this change in purchasing policy will help reduce Westland’s large current account deficit.” What are the effects of this change in purchasing policy on the current account balance in each country and on the world real interest rate?
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