A small open economy is in long-run equilibrium; it has some foreign debt outstanding; and its interest rate exceeds its growth rate.
I: The country has a trade surplus.
II: The world interest rate exceeds the country's growth rate.
A) I is true; II is not.
B) II is true; I is not.
C) Both I and II are true.
D) Neither I nor II is true.

Question

Quizplus · Accepted Answer

The country has a trade surplus because it is in long-run equilibrium and its interest rate exceeds its growth rate. The world interest rate does not exceed the country's growth rate.

A Small Open Economy Is in Long-Run Equilibrium; It Has