Final Draft-sent to Jian. - Name Zachene Crooks Lecturer...

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Name: Zachene Crooks Lecturer: Professor Jian Wang Subject: Global Trade Policy Date: April 2, 2010 United States Current Account Deficit What is a Current Account deficit? A current account deficit reflects changes and imbalances in the global economy. However, to fully understand what a current account deficit is, one must understand how a country’s international trade in goods and services, international borrowing and lending are recorded on its balance of payments accounts. There are three primary components to the balance of payment account: 1) current account; 2) capital account; and 3) financial account. This statement shows the records of all the monetary transactions between a country and all the other countries with which it trades in goods and services. These transactions include payments for the country's exports and imports of goods , services , financial capital , as well as financial transfers . As a result, when all the items are included on the balance of payment sheet and it sums zero, there is is neither a surplus nor a deficit. There are three indicators to the current account, most crucial of which is the balance of trade. A trade deficit occurs when a country’s imports exceeds its exports, and it also take into account tradable services, real estate and shipping. Secondly, one has to look at investment payment balance. This is computed by subtracting the interest receipts of domestic resident to 1
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foreign investment from interest payment to foreign investors. Lastly, unilateral transfers measure the values of gifts, private remittance, and nonmilitary economic development grants. Consequently, if and when there is an imbalance in any of these components the country in question will experience a current account deficit. A current account = balance of trade + net factor income from abroad + net unilateral transfers from abroad. If there is a deficit or a surplus this highlights something about the economy and its standing when compared globally with other countries. In the event that a current account deficit occurs, this indicates that a county is importing more than it is exporting. Also, this implies that a country is investing more abroad than it is saving at home. According to Reem Heakal, (site source for example Reem Heakal, writing in the Washington Journal of Investment (2009) notes that,) a current account deficit implies that a country's economy is functioning on borrowed means. In other words, monies borrowed from other countries or investments by other countries are essentially financing the economy, and hence sustaining the deficit. Thus, when determining the economic health of a nation, it is important to understand where the deficit stems from, how it is being financed and w hat are some of the possible solutions . Para 4. This is not how sources are sited. This raises the question as to the causes of the current account deficit in the United States of America.
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