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Economic Questions & Answers

The U.S. has incurred significant trade deficits during the past several years, yet the economy continued to expand. Explain.

As illogical as it may seem, the greater trade deficits become, the greater the economy has expanded. ôThe US economy is doing fine, growing about 4% per annum with good momentum for the months ahead.ö (Kubarych, 2004). The reason for this apparent disparity is that trade deficits are not necessarily the direct result of a poor U.S. economy; in fact, there are a number of more likely causes. The nations we trade with may be suffering under a poor economy that suppresses trade at their end. In some cases, unfair or otherwise imperfect domestic trade practices are at fault. In others, trade is simply not a good deal because rates have been manipulated. According to Daniel T. Griswold of The Globalist, ôWhatever negative impact the deficit may have in the long run, there is no evidence that the U.S. trade deficit poses a drag on the U.S. economy in the short run.ö

The national debt continues to increase and many suggest that it will eventually bankrupt the U.S. What is your reaction to this argument? Explain.

The national debt is not likely to bankrupt the U.S. as long as the borrowed money is used for the right purposes. For example, if a private citizen took out a home equity loan to buy 10,000 lottery tickets, that would be a waste of money and a poor reason to incur debt; he could lose his home, and he would have nothing to show for his investment. But if that same homeowner used the debt to fund a business that doubled his income, he would come out ahead financially even though he had incurred debt. In the same way, the amount of the national debt is not a concern as long as the debt is being incurred to improve the countryÆs financial position. ôIn a growing economy, the national debt is nothing to fear.ö (Conover, 2001). When the debt is treated as an investment used to fund growth,...

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Economic Questions & Answers. (1969, December 31). In LotsofEssays.com. Retrieved 06:37, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1713023.html