Wednesday, April 16, 2008


One of the more interesting aspects of macroeconomics is making connections for students between things that may seem unconnected. A prime example that is also a sometimes thorn in the side is the connections between government budget deficits, the current account (trade) deficit, and savings.

The former President of the Federal Reserve Bank of Dallas, Bob McTeer, has an excellent explanation and a helpful graphic to help with the explanation. I particularly like the way he starts with a simple, closed economy with no government to build the model, and then expands to include trade and government.

What do you think?

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