Economics Help

Sectoral Balances  (Textbook Reading ‘Sectoral Accounting and the flow of funds’ Ch 5)

(100  words)

1.      During the Howard Government (1996 -2007) Australia had a  trade deficit. For most of these  years  the  government  had  a  fiscal  surplus.  

a)     Using  the  sectoral  balances  identity, explain  the  consequences of these surpluses  for the private sector’s net acquisition of financial  assets.

 

b)     How did households respond to this change in net financial assets?  What types of actions did they do?

Sovereign Currency  (Textbook Reading ‘Sovereign Currency’ Ch 6)

(100 words)

2.      Consider a country operating under a gold standard with a fixed exchange rate, which is running a current account deficit.

               a)     Explain why its foreign exchange reserves could be depleted.

b)     Outline the actions that could be taken by a government to avoid running out of foreign exchange reserves. Assume the fixed exchange rate is the pound. 

c)      Why are these actions economically unpalatable?