The U.S. trade deficit, current account deficit, and investment

a. Define national saving as private saving plus the government surplus-that is, as \(S+T-G\). Now, using equation (18.5), describe the relation among the current account deficit, net investment income, and the difference between national saving and domestic investment.

b. Using the FRED economic database retrieve annual data for nominal GDP (series GDP), gross domestic investment (series GDPIA), and net exports (series A019RC1A027NBEA) from 1980 to the most recent year available. Divide gross domestic investment and net exports by GDP in each year to express their values as a percentage of GDP. What year has the largest trade deficit as a percentage of GDP?

c. The trade surplus in 1980 was roughly zero. Compute the average percentage of GDP invested and the average value of the trade balance as a percent of GDP in three periods: 1980-1989, 1990-1999, 2000 to the latest point. Would it appear that trade deficits have been used to finance investment?

d. Is a trade deficit more worrisome when not accompanied by a corresponding increase in investment? Explain your answer.

e. The previous question focuses on the trade deficit rather than the current account deficit. How does net investment income (NI) relate to the difference between the trade deficit and the current account deficit in the United States? You can download GDP (series GDP) and GNP (series GNP) from the FRED database at the Federal reserve Bank of St. Louis. This difference is a measure of NI. Is this value rising or falling over time? What is the implication of such changes?