Exercise 14.1 Indicate whether the following statements are true, false, or uncertain and explain why. 1. Suppose the current account decit is 5% of GDP and that half the population is borrowing constrained. Then, the government could eliminate the current account decit by increasing (lumpsum) taxes by 10% of GDP. 2. A tax cut with current and future government spending unchanged causes an increase in saving as opposed to an increase in consumption, because households understand that taxes will have to increase in the future. Since the current account equals saving minus investment, the current account improves. 3. The government increases government spending and lumpsum taxes in the same amount, leaving the primary scal decit unchanged. This policy should have no effect on the current account, which is in line with the Twin Decit hypothesis