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Current Fiscal Deficit of US

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Your hometown newspaper needs someone to write an informative article on large scale economic issues. The reporter who spoke with you before thinks of you, welcomes you home, and requests another article. Click here to view a summary of disaggregated data drawn from information provided on the 2000 U.S. balance of payments which is in the 2002 federal document, Economic Report of the President, available on the web.

In addition to the balance of payments data presented above, the Bureau of Economic Analysis' document entitled, International Investment Position of the United States (http://www.bea.gov/bea/newsrel/intinvnewsrelease.htm) offers the following information.

"At year-end 2002, the value of foreign investments in the United States exceeded the value of U.S. investments abroad by $2,387.2 billion (preliminary) with direct investment valued at current cost. At year-end 2001, foreign investments in the United States exceeded U.S. investments abroad by $1,979.9 billion (revised)."

Write a 2-3 page article on the United State's current account deficit. The reporter will edit your material down to a usable length but asked for plenty of material with which to start. She requests that you answer the following questions:

What has caused the U.S. run a merchandise trade deficit year after year since the early 1980s?
Is the current account a deficit problem? Explain.
Is the trend of the international investment position of the U.S. problematic? Why or why not?
How is the current account related to a country's business cycle?
What is the relationship between a country's net financial inflow and its current account?
How does the U.S make adjustments for the balance of payment issues?

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Solution Preview

The response addresses the queries posted in 992 words with references.

// Fiscal deficit is a term which has dreaded even the mightiest of nations. In the current scenario the United States of America is the biggest debtor in the world. Before writing about this we would describe a short introduction of the Current Fiscal Deficit of the US //

Current Fiscal Deficit of US

The United States of America has transformed from the world largest creditor to the biggest debtor in the world. The merchandise trade deficit has been growing since 1975. It has even surpassed the growth of gross domestic product (GDP). In 2005, the merchandise trade deficit of the US was estimated to be $791.5 billion which is approximately 6.4 percent of GDP. In simple words the current fiscal deficit implies that the country is spending more than what it is earning. The country's spending includes both the private and government sector (Blecker, 1999).

// After giving a short introduction we would now proceed to second part of the instructions. The second part explores the reasons behind the U.S. accumulation of merchandise trade deficit year after year since the early 1980s.//

There is no single reason which can be attributed to this deficit. Several theories and reasons have been given to explain this deficit which has been growing since early 1980's. These reasons include budget deficits of the U.S., decreasing private household savings, increased savings by the rest of the world, China's pegged exchange rate, etc. According to certain views, emerging economies have been rising at the expense of the U.S. Current account ...

Solution Summary

The response addresses the queries posted in 809 Words, APA References.

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