Question

Discuss the major ways in which the Iraq War (2003-2007) impacted the Balance of Payments(BOP) account of the United States – (Be sure to consider both the Current Account and Capital Account components of the BOP). As detailed as possible please

Answer 1

Iraq war (2003-2007) adversely affected the US economy because of the following reasons:

1. Oil prices increases which affect the US economy because US economy is a capitalist economy and f the oil price will rise than it adversely affect the industries and which ultimately reduces the overall production capacity of the economy because supply is totally based on the production.
2. US GDP reduced by $274 billion approximately which includes both the current items and capital items of the BOP.
3. The investment of the US economy also reduced because of the downsized capital structure. Which finally affect the capital account of the BOP.
4. Balance of payment of current account includes all the recurring items and that’s why the international demand of some prime sectors reduced which also affect the current account of BOP.
5. Trade restrictions on some countries during that period will down sized the market demand.
6. US economy indulged in the war goods instead of the capital goods and the share market also in a dilemmatic situation which reduced the market value of the capital goods industries.
7. But in some aspects the results of gulf war also helpful in the long term for the US economy to overcome the BOP deficits