Title

How budget deficits cause trade deficits: The simple analytics

Document Type

Working Paper

Journal/Book Title/Conference

Journal of Economic Education

Volume

21

Article

1098

Issue

4

Pages

388-394

Publication Date

11-1989

Department or Program

Economics Department

Abstract

The traditional classroom presentation of international macroeconomic issues obscures the link between budget deficits, exchange rates, and the trade deficit. The article offers a simple supply and demand framework to clarify the role of budget deficits in creating trade deficits. The same framework can also be used to present other comparative statics results where the effect on the trade deficit is of interest.