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How Budget Deficits Cause Trade Deficits: The Simple Analytics, by Marc O. Lieberman (Nov. 1989)

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.

Published: Journal of Economic Education, Fall 1990; 21(4): 388-94.

Working Paper (102 KB, PDF)