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MACROECONOMICS
A reduction in the fiscal deficit increases government and
national saving. The greater availability of domestic financial
capital reduces the reliance on external finance for investment
and the servicing of external debt. This can lead to higher
subsequent national income depending on the productivity
of investment expenditure.
The change in the ratio of foreign assets to GNP, which reflects
the current account position of the economy, is driven by the
trade imbalance (which is financed through the acquisition of
financial assets abroad) and a debt dynamics term that rises
as the differential between the interest ...
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