StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Economics (twin deficit) - Essay Example

Cite this document
Summary
The large budget deficit and corresponding increase in current account deficit has come to a point where serious steps need to be taken. The current deficit of…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.6% of users find it useful
Economics (twin deficit)
Read Text Preview

Extract of sample "Economics (twin deficit)"

Large US Budget and Current Account Deficit The US budget deficit for the last 20 years has been rising steadily and has now assumed a gigantic proportion. The large budget deficit and corresponding increase in current account deficit has come to a point where serious steps need to be taken. The current deficit of approximately $900 million is nearly 7% of GDP which is largest till date. The International Monetary Fund (IMF) has too voiced its concern. The large budget deficit means that the government expenditure is much more than its income.

Several major policy decisions may account for the large deficit but the main area where the allocation of fund has steeply risen is the defence budget. The deficit has been covered through the borrowing from various agencies both foreign and domestic. The persistent current account deficit for last 20 years has given unprecedented amount of claims to foreign investors. It is always possible that at some time in future and specially if no corrective measures are urgently taken up, the situation may very well become challenging.

The foreign claims are generally in the form of stock bonds, treasury issues, bank accounts and other types of financial securities. Foreign governments, their central banks and international agencies possess a sizable share of the claim. One way of looking at the present scenario is that America is becoming increasingly dependent on the imports while its export market is not showing substantial growth. Steady depreciation of the dollar in the international market is the indicator that decides the inflow of foreign investment in the country.

When the dollar depreciates, there is more inflow of foreign goods and services.IMF in recent time has also cautioned US to take appropriate steps to curb its rising current account deficit. The report says that ‘the concern remains that at some time more adjustment will be needed to ensure that the global pattern of current account position remains consistent with the willingness of the international wealth holders to build up net claims on the United States’.The global economy has been advancing at a very fast rate and in the present circumstances when the global inter-dependence has become a norm, United States needs to moderate its consumption and spending and focus on issues that would help restrain the increasing growth of current account deficit.

One must conclude that today statistics show that US needs to import $1 trillion of foreign capital every year. In the long run, it is highly unsustainable situation both in terms of international finance and domestic political viability. Urgent corrective measures are the need of the hour and should be taken on top priority basis.ReferenceGlobal Prospects and Policy Issues:Chapter 1 [Internet]. Available from: [Accessed on 24 May 2007].

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Economics (twin deficit) Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Economics (twin deficit) Essay Example | Topics and Well Written Essays - 500 words. Retrieved from https://studentshare.org/miscellaneous/1540949-economics-twin-deficit
(Economics (twin Deficit) Essay Example | Topics and Well Written Essays - 500 Words)
Economics (twin Deficit) Essay Example | Topics and Well Written Essays - 500 Words. https://studentshare.org/miscellaneous/1540949-economics-twin-deficit.
“Economics (twin Deficit) Essay Example | Topics and Well Written Essays - 500 Words”, n.d. https://studentshare.org/miscellaneous/1540949-economics-twin-deficit.
  • Cited: 0 times

CHECK THESE SAMPLES OF Economics (twin deficit)

The Impact of Quantitative Easing in the United States

Controversial and radical, the decision to apply to quantitative easing became one of the most actively discussed issues in economics.... GLOBAL ECONOMY by [Author's Name] 16 January 2011 Global Economy Discuss the impact of ‘quantitative easing' in the United States on both the domestic economy of the US and the global economy....
11 Pages (2750 words) Essay

Analyze whether a dollar depreciation will improve the U.S. current account deficit

current account deficit?... current account deficit?... hellip; While the current account surplus increases a country's net foreign assets, a current account deficit does the reverse.... It is evident from the above definitions that huge amounts of current account deficit may not be good for the economic growth.... In other words, a nation is said to have a trade deficit if it is imports more than it exports....
4 Pages (1000 words) Essay

Protectionism, Gains from Trade, and Trade Balance Deficits and Surpluses

There can arise deficit or surplus (when exports are higher than imports) or deficit (when imports are higher than exports) in the trade balance of any country.... Whenever the volume of exports appears (measured in terms of money value) to be greater (smaller) than the volume of imports (measured in terms of money value), then there occurs a surplus (deficit) in the trade balance.... This tax cut caused huge budget deficits and defense costs and increased the volume of fiscal deficit (Auerbach)....
4 Pages (1000 words) Essay

Efforts to Reduce the Budget Deficit

Efforts to Reduce the Budget deficit Name: Institution: A report released by the Congressional Budget Office in November 2012 indicated that the Federal debt held by the public exceeded 70 percent of the GDP which is the highest since 1950.... hellip; Even though the same report pointed out that the budget deficit would reduce markedly from $1.... Notwithstanding, the present economic pressures would make it hard to reduce the deficit unless stern and sound policies and regulations are put in place....
3 Pages (750 words) Research Paper

Analysis of Twin Deficits

The US twin deficit Experience Beginning from the 1980s (during the era of Reagan Administration), the US had high trade and budget deficits.... The US experience on the twin deficit clearly tells which area of the deficit should receive keen and thorough study in order to curb or solve this problem wholly.... Twin Deficits Name Institution Course Date Introduction Twin deficits also known as the double deficits is a brief introduction for two associated economic challenges, the state budget deficit and the global trade or current account deficit....
6 Pages (1500 words) Research Paper

Australian Macro-Economy

The Australian Labor administration inherited a large fiscal deficit in 1982/3, in consequence partly of a severe recession.... The government proceeded to reduce this deficit progressively through the decade.... This analysis highlights the critical importance of macro-economic management in a reform program designed to make the Australian economy more internationally oriented....
7 Pages (1750 words) Essay

Controversial Debt Stabilization

Balanced budgets used by the government are budgets in which there are no budget surpluses or deficit i.... The budget may have a surplus but does not have a deficit in any situation.... A cyclically balanced budget on the other hand is spread over an entire economic cycle and demonstrates surplus during the boom period and deficit during the trough periods of the business cycle....
6 Pages (1500 words) Essay

Government borrowing, government budgets and fiscal policy impact

Trade deficit is when a country tends to import more than its exports its goods and services.... Trade deficit is when a country tends to import more than its exports its goods and services.... In this situation, the actual deficit for the year is less than the forecasted amount.... Both this budgets can be seen as interlinked through the theory of twin deficits in that when the government… ends up by cutting on the amount of tax it charges, people will tend to increase their rate of spending hence allowing them to buy more imported goods and service, hence increasing the rate at which the government borrows funds from financial institutions in other countries as Government borrowing, government budgets and fiscal policy impact....
1 Pages (250 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us