Handout 2: Intertemporal Approach to the Current Account

Question 1

What is the difference between open and closed economies?

Answer 1

an open economy can borrow resources from the rest of the world or lend them abroad.

Question 2

What is Intertemporal Trade?

Answer 2

Resource exchanges across time are called Intertemporal Trade ( measured by the current account of the balance of payments).

Question 3

International trade theory

Answer 3

the principle of comparative advantage states that countries tend to import ( export) those commodities whose autarky prices are high (low ) compared with world prices.