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ASSIGNMENT INSTRUCTIONS:
Main task
Submit a report that addresses the below two questions. The report should have a cover, table of contents, and references at the end. Citations along the text that indicates where the information used come from are necessary.
Part 1: The USA has had a significant current account deficit for several decades now. Explain why this may be the case for the last two decades and explain the consequences for the USA of this current account deficit. 600 to 700 words to words excluding bibliography.
Part 2: Critically evaluate the effectiveness, consider, and explain the pros and cons for the government, businesses, and people of two policies that the USA could use to reduce its current account trade deficit. 1,050 to 1,400 words excluding bibliography.
Other details:
Font size 12
Single-spaced
Number of words: Minimum 1,650, maximum 2,100 without counting the cover, table of contents and
references
All referencing and citations require Harvard referencing style.
HOW TO WORK ON THIS ASSIGNMENT(EXAMPLE ESSAY / DRAFT)
Introduction The United States has experienced a significant current account deficit for several decades now. This report aims to explain the reasons behind this trend and the potential consequences for the USA. Additionally, it will evaluate the effectiveness of two policy options that the USA could use to reduce its current account trade deficit.
Part 1: Causes and Consequences of the Current Account Deficit The USA’s current account deficit is mainly caused by the imbalance between the country’s imports and exports. Since the 1990s, the USA has imported more goods and services than it has exported. This deficit can be attributed to several factors, including the high demand for foreign goods, low savings rate, and the international reserve currency status of the US dollar. Furthermore, the USA has experienced a decrease in domestic production, leading to an increased reliance on imports.
The current account deficit has significant consequences for the USA. Firstly, it makes the USA vulnerable to economic shocks and exposes the country to the risk of financial instability. Additionally, the deficit creates a substantial debt burden that needs to be financed by borrowing from foreign investors. This borrowing can lead to higher interest rates, which can negatively affect the economy’s growth.
Part 2: Policy Options to Reduce the Current Account Deficit The USA can implement various policy options to reduce its current account deficit. This section evaluates the effectiveness of two policies, namely trade protectionism and currency devaluation.
Trade protectionism involves implementing tariffs and quotas to limit the import of foreign goods. This policy option can protect domestic producers and reduce the trade deficit. However, it can lead to retaliatory measures from trading partners and create higher prices for consumers, leading to inflation. Furthermore, protectionist policies can lead to a reduction in international trade, which can negatively affect the USA’s economic growth.
Currency devaluation involves reducing the value of the US dollar compared to other currencies. This policy option can make US exports more competitive and reduce the trade deficit. However, devaluation can lead to higher inflation and a decrease in the value of US assets held by foreign investors. Additionally, devaluation can lead to retaliatory measures from trading partners and damage the USA’s credibility in international financial markets.
Conclusion In conclusion, the USA’s current account deficit has significant consequences for the economy, making it necessary to implement policy options to reduce it. Trade protectionism and currency devaluation are two potential policies that can reduce the trade deficit, but they have their advantages and disadvantages. The USA must carefully consider the potential consequences before implementing any policy option.
References [Insert here a list of references used in Harvard referencing style.]
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