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Policy Alternatives for Trade Deficits

If you wish to lower the trade deficit, list four policy alternatives that can accomplish this goal. Why?

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Since the 1970s the U.S. moved from a trade surplus to a deficit position, as Europe, China and Japan began to compete effectively with the U.S. in a range of industries. The fundamental problem behind the huge trade deficit is the macroeconomic policy of the government, which has relied on tax reduction and other simulative measures to boost investment and consumption. The huge trade deficit, according to basic national income accounting principles, merely reflects the size of the saving-investment gap and the budgetary deficits. A trade deficit is often matched with a large governmental budget deficit. Though the specific effects of a trade deficit are nebulous, in general a large trade deficit is thought to stunt long-term economic growth slightly.

Measures to control trade deficits:

(i) Adjustment through exchange rate:

Under ...

Solution Summary

Describes policy alternatives that would help accomplish a lower trade deficit in 536 words.