Problem
a) From national income identity set the investment - saving - current account relationship equation for open economy. What are the advantages and disadvantages of investment financing by external savings?
b) From the same equation define the condition of twin deficit. Explain the twin deficit phenomenon in a theoretical way. You can assume that initially economy at equilibrium point without any internal or external deficit. If government decide to implement expansionary fiscal policy what would be the consequences. You can evaluate this scenario considering twin deficit.