In Chapter 10, Carbaugh Asks, "Can the United States Continue to Run Current Account…

In Chapter 10, Carbaugh Asks, “Can the United States Continue to Run Current Account Deficits Indefinitely?” Since in the long term, the obvious answer is no, perhaps the question should be rephrased to ask the following:

  • Does the United States’ unique position in the world economy allow the country to safely run persistent external deficits?
  • Can persistent U.S. deficits in the current and payments accounts be adjusted without bringing about economic recession or crisis?

In a 4-6 page (12-point font, double-spaced) essay, summarize and critically evaluate the main positions provided on this in Carbaugh’s Chapter 10 and the Deutsche Bank Research piece also assigned as reading for this module.

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International topics Economics Editor Stefan Schneider +49 69 910-31790 stefan-b.schneider@db.com Technical Assistant Pia Johnson +49 69 910-31777 pia.johnson@db.com Deutsche Bank Research Frankfurt am Main Germany Internet: www.dbresearch.com E-mail: marketing.dbr@db.com Fax: +49 69 910-31877 Managing Director Norbert Walter October 1, 2004 Current Issues The U.S. balance of payments: widespread misconceptions and exaggerated worries • The U.S. balance of payments is by far the most confusing and least understood area of the U.S. economy. The confusion is centered around the large and rapidly growing deficits. Indeed, the deficit on the current account of the balance of payments rose to new records, both in absolute and relative terms. • These developments created worries and fears regarding the sustainability of the external deficits. However, closer examination of the issue shows that the worries and fears are exaggerated and, most importantly, there are no shortand medium-term solutions because of a number of structural reasons. Mieczyslaw Karczmar, +1 212 586-3397 (mkarczmar@aol.com) Economic Adviser to DB Research Guest authors express their own opinions, which may not necessarily be those of Deutsche Bank Research. October 1, 2004 Current Issues Economics 3 The U.S. balance of payments is by far the most confusing and least understood area of the U.S. economy. The confusion is centered around the large and rapidly growing deficits. Indeed, the deficit on the current account of the balance of payments rose from USD 474 billion in 2002 to USD 531 billion in 2003 and is estimated to reach over USD 600 billion in 2004 (see table 1). In relative terms, the deficits amount to 4.5%, 4.9% and 5.3% of GDP, respectively, in those years. Both in absolute and relative terms, these are all-time records. The sustainability of external deficits Persistent and rising external deficits have attracted increasing attention of politicians, economists and the media. Needless to…

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