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Economics for Management Studies
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Iris Wu

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ECMC61Chapter 13 Review Questions Answer KeyQuestion 1 Problems 6A government might concern about a large CA surplus or a large CA deficitA CA surplus or deficit is a situation which may not be sustainable in the long runA CA deficit implies the country is borrowing from abroadIn order to repay the foreign debt the country must run a CA surplus in the future unless todays borrowing is used to improve productive capacity in order to have a higher national income tomorrowA persistent CA deficit implies an accumulation of foreign debts and it is possible that the country may not able to repay its foreign borrowings A CA surplus implies the country is investing abroadA country cannot run a CA surplus on a persistent basis because a persistent CA surplus can only be achieved if the countrys consumption is lower than
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