4. The US has experienced large and growing current account deficits for more than 20

years, whereas Japan has experienced large and growing current account surpluses

for roughly the same period. The US economy has grown at faster rates than Japans

over the past 10 years.

a. Use the relationship between the current account and GDP to explain the

difference in growth rates between the two economies.

b. In trade negotiations with the Japanese over the large US trade deficit with Japan,

the US administration has urged the Japanese government to undertake a more

expansionary fiscal policy. Explain how this might affect the US trade deficit with

Japan.