Question

Question 8

Suppose that the US and the European Union are the only 2 countries in the world, and their Current Accounts determine the world real interest rate.
You are told

The interest rate when the economy is closed is 4% in the US

The interest rate when the economy is closed is 5% in the EU

If the two economies opened up to trade, and you were told that the world real interest rate is at 6%...

	A	The US would be running a current account deficit, the EU would be running a current account surplus
	B	You can't say if this is an equilibrium: not enough information
	C	You would think that this can't be an equilibrium, since both economies would be running a current account deficit
		DYou would think that this can't be an equilibrium, since both economies would be running a current account surplus

Answer 1