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Usa Current Account Deficit

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Submitted By ANSHUMANARAYA
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US & the pertaining issue of Current Account Deficit:

As mentioned in the given case,
“A country with good investment prospects, a large budget deficit, or a low propensity to save tends to have a net capital inflow and a current account deficit”.
The onus is on: a) Encouraging consumer spending by giving tax cuts and low interest rates. b) Providing good investment prospects to foreign customers as most of the big-shot investors find American securities less risky as compared to EU or other emerging markets. c) Consistent decline in competitiveness as the country is vastly dependent on importing goods rather than developing providing a boom to economies like India and China.

* Ever since early 90s, the US has always imported more than they export. Thus which on the other hand has led to a need for cheaper imports from other countries to sustain an average American household. Since cheap labor is available in foreign countries most of the work is outsourced and hence their production is not up to their full potential.

* The government on the other hand focuses on imports rather than improve the supply leading to a poor manufacturing sector.This is an advantage to countries like China which have cheap labor and is a major exporter to the U.S. Also as the government focuses on imports rather than supply to meet the demand major exporters like China get benefited.

* The major advantage is that all the transactions take place in terms of dollars. Thus foreigners will be willing to buy dollar at a lower premium thus attracting more capital.

* Current account deficits which is currently pretty high can be reduced by increasing exports by encouraging industries by subsidies, custom duty exemptions or by decreasing imports by placing some import restrictions,

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