twin deficits theorem (1 Viewer)

[olay]

guys is this theorem valid???? and can someone explain it... like what i gather is that if the gov't runs a budget deficit, to service it they've either got to borrow o.s. [which is what they're likely to do cause they need lotsa $$] or borrow locally...but then those local are gonna have to eventually run overseas to borrow to compensate anyway.

and does the twin deficits theorem contradict crowding out??

 

[ToO LaZy ^*]

nah..i don't think its in the syllabus
dun worry bout it matey

 

[i-color]

yeah it's not in the syllabus, but if you get the general jist of it it's alright....like it sounds good just to chuck it into an essay or something. i chucked it in in my hsc exam.....ehehe.

bascially Twins deficit argument is that by decreasing investment or govt public borrowing, or increasing savings, CAD should decrease. However, it's not really a valid theory because it assumes that savings & investment are the same, which is never.

 

[George W. Bush]

Originally posted by i-color
bascially Twins deficit argument is that by decreasing investment or govt public borrowing, or increasing savings, CAD should decrease. However, it's not really a valid theory because it assumes that savings & investment are the same, which is never.

No, it doesn't, as far as I can discern.

If I recalled correctly, the twin deficits equation is I - S + PSBR = CAD, often shortened to I - S = CAD, which represents the structual components of the CAD. From that equation either decreasing investment (as Keating did, leading to a recession) or increasing savings (e.g. budget surpluses, superannuation) will derease the CAD