In the two-period SOE model, equal increases in current and future income imply that

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Quizplus · Accepted Answer

The two-period SOE model implies intertemporal trade, meaning individuals can consume more today by saving some of their current income and consuming it in the future. If incomes increase equally in both periods, individuals may choose to save some of their current income and consume it in the future, resulting in an increase in investment and a decrease in current consumption. However, whether this leads to an increase or decrease in the current account surplus depends on the specific preferences and behaviors of the individuals in the economy. Therefore, we can't say what happens to the current account surplus with certainty.

In the Two-Period SOE Model, Equal Increases in Current and Future