Question

In the context of the national savings and investment identity, briefly describe the main sources for both the supply of and demand for capital in the U.S. economy. Then briefly explain how short-term movements in the business cycle affect the trade balance.

Answer 1

There are certain interest rates and open policies that can get to effect a lot for the U.S economy where these friendly policies tell a lot about why there are many investors to this country. It is obvious that these open trade and free policies for the investors are the main reasons why there's a lot of supply of capital for the U.S. Apart from that, the continuous demand for the products and American made goods from the rest of the countries of the plant can be the main reason why there is high demand for capital in the United States. Trade balance is nothing but the balance of trade between exports and imports. In short term business cycle movements, trade imbalances can be affected by whether an economy is in a recession or on the upswing where a ecession tends to make a trade deficit smaller, or even a trade surplus larger where during the time of the strong economic growth tends to make a trade deficit larger and even the surplus trade smaller as well.