Why do economists believe that the US trade deficit shows the strength of the economy?

Why do economists believe that the US trade deficit shows the strength of the economy?

Solutions

Expert Solution

The term deficit means gap. Trade deficit is the gap in final balance of payment or balance of trade between two involved nations. When we say trade, we mean export vs imports.

Let's understand it with an example. Suppose a country has good trade relations with neighbouring countires to an extent that it has free trade regulation laws & econmic zone to curb high duties. Now if this country imports goods worth 100 dollars and exports goods worth 80 then clearly there is a deficit of 20 dollars.

This means also the country's economy is consuming more or the consumption cycle is triggered. And when it is triggered it leads to more investment (capital goods), production and further consumption and as a result the ecomony is strengthened. And this is all in respect to US. A strong economy has strong currency.

In short it is good and usually doesn't actually require any federal intervention unless gap is increasing every year.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

1) Why do economists believe it is better to trade than to remain self-sufficient? Is this...

1) Why do economists believe it is better to trade than to remain self-sufficient? Is this always true? Explain in detail. 2) Explain the principle of opportunity cost and provide a detailed example.

Define free trade. 9. Why do many economists believe that unrestricted free trade between nations will...

Define free trade. 9. Why do many economists believe that unrestricted free trade between nations will raise the economic welfare? 10. Explain Q.9 above in terms of absolute and comparative advantage,

Why economists believe trade is important and analyze the arguments for and against free trade, using...

Why economists believe trade is important and analyze the arguments for and against free trade, using economic reasoning.

the u.s is a large economy with a trade deficit. suppose the us fedral government permanently...

the u.s is a large economy with a trade deficit. suppose the us fedral government permanently increase income tax. how will this policy affects the us saving investment, real interest rate and capitall flows? is it possible yo use monetary policy to prevent changes due to this tax policy? if yes how

Why do you believe that quality can be viewed as a strength and a weakness of...

Why do you believe that quality can be viewed as a strength and a weakness of the U.S. health care system? Be sure to provide at least 2 reasons for this, and provide specific examples for discussion. Identify several difficulties and several benefits of working with licensed independent practitioners to improve quality in a typical hospital. What considerations should managers keep in mind when working with them?

Question 1: The US Economy is experiencing a huge trade deficit over last few decades. Explain...

Question 1: The US Economy is experiencing a huge trade deficit over last few decades. Explain the causes and consequences of this trade deficit on the US economy. Question 2: Under what circumstances the trade deficit is really bad and under what circumstances the trade deficit is not too bad? Explain.

Consider an economy with trade deficit. The policymakers are considering two alternatives to reduce the deficit:...

Consider an economy with trade deficit. The policymakers are considering two alternatives to reduce the deficit: fiscal policy and exchange rate policy (changing the exchange rate). Explain how each policy would be implemented. What would be the effects of each type of policy intervention on the output level? Illustrate your answers by the Keynesian cross-net export diagrams.

suppose the current account for the us shows deficit of $400 billion in good/merchandise and deficit...

suppose the current account for the us shows deficit of $400 billion in good/merchandise and deficit of $800 billion in service. This would imply the u.s has a relative comparative advantage in the production of what? Suppose the is has the following net amounts appearing on their balance of payments statment: goods= -50 , service= +100 , factor income= +120 unilateral transfer= -25 , portfolio investment= +75. What is the us balance of trade. what is the the us current...

What is the role of the COVID-19 pandemic in the US trade deficit?

Explain why the neoclassical economists believe that the government does not need to do much about...

Explain why the neoclassical economists believe that the government does not need to do much about unemployment. Do yo agree or disagree? Explain.

Subjects