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trade deficit

1) How does the trade deficit impact the U.S. economy?
2) How do changes in exchange rate affect a federal government organization?
3) Is a strong U.S. dollar always good for the U.S. and global economies? Why or why not?

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1) How does the trade deficit impact the U.S. economy?
Balance of trade is Exports-Imports or Net exports. They form part of the balance of payments. A positive balance of trade is known as a trade surplus and consists of exporting more than one imports thus it will have positive effect on Balance of Payment.
A negative balance of trade is known as a trade deficit and consists of importing more than one export. Thus it has negative effect on Balance of payment.
In long term the balance of payment should be in equilibrium. Excess of surplus or deficit can create problems for the economy. Earlier the federal government budget was in surplus, which has been transformed into a yawning deficit, which will persist as far as the eye can see. At the same time, the current account deficit has reached levels, which have portended currency collapse in virtually every other instance in history. The United States is now borrowing about $540 billion per year from the rest of the world to pay for the overall deficit funding Americans' consumption of goods and services and US foreign transfers. It has led to the weakening of dollar in recent years. Sustainability requires structural changes. Fiscal discipline has been key to the U.S. economic expansion, but fiscal irresponsibility was replaced by excessive household spending.

A global expansion would benefit the U.S. economy; obviously, it would also be good for other countries. There, as in the United States, the key to raising long-term sustainable growth is faster productivity growth, which will come with increased market flexibility and globalization. This recipe would raise U.S. and global growth rates and put the U.S. trade and ...

Solution Summary

Balance of trade is examined.