3. The Balance of payments is always balanced." Discuss
4. Suppose private saving is further separated into 𝑆𝐶𝑃𝑎𝑛𝑑 𝑆𝐹𝑃representing consumer
savings and firm savings respectively. Show that total savings 𝑆=𝑆𝐶𝑃 +𝑆𝐹𝑃 +
𝑆𝐺given the following
i. Private citizens earn a wage (W), pay taxes, consume and save the
remainder of their income
ii. Firms receive revenue from sales (Y), pay wages to workers (W),
and pay taxes
iii. Total government taxes is the sum of taxes paid by private citizens
and firms
iv. 𝑆𝐺 =𝑇−𝐺
5. Why would governments be concerned about current account deficits or current
account surpluses? Discuss at least one hypothetical for both outcomes.
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