In explaining the 2008 crisis, which affected the UK and many other countries, some economists suggested...

 

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In explaining the 2008 crisis, which affected the UK and many other countries, some economists suggested that a Chinese 'savings glut' was partly to blame. The idea was that many people in China (around 18% of the world's population) were saving a rising proportion of their fast-growing incomes. According to the 'savings glut' theory, these savings were 'imported' by other countries (notably the UK and US), pushing their interest rates down. By referring to the macroeconomic accounting balances of the public, private and international sectors, explain: a. why a glut of global saving might have been associated with the UK running a current- account deficit. b. why the UK government, worried about its current-account deficit, might have been trying to balance its budget or run a budget surplus in the years before 2008. In explaining the 2008 crisis, which affected the UK and many other countries, some economists suggested that a Chinese 'savings glut' was partly to blame. The idea was that many people in China (around 18% of the world's population) were saving a rising proportion of their fast-growing incomes. According to the 'savings glut' theory, these savings were 'imported' by other countries (notably the UK and US), pushing their interest rates down. By referring to the macroeconomic accounting balances of the public, private and international sectors, explain: a. why a glut of global saving might have been associated with the UK running a current- account deficit. b. why the UK government, worried about its current-account deficit, might have been trying to balance its budget or run a budget surplus in the years before 2008.

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a A glut of global saving can lead to a current account deficit if the country is importing more tha... View the full answer