The U.s trade deficit causes?
a the value of the dollar to strengthen in foreign markets
b worldwide recessions
c increased employment opportunties for americans
d the values of the dollar to decrease in foreign markets
- Anonymous1 decade agoFavorite Answer
The mechanism is quite simple - a trade deficit, simply put, means that domestic savings is less than domestic investment. This causes upward pressure on the interest rate (due to higher demand for loanable funds). This pressure causes more people to save at home and causes a decrease in capital outflows....in the end this strengthens the dollar.
So the answer is A.
Edit: The answers claiming "D" are incorrect, as any undergraduate macroeconomics text will demonstrate.Source(s): Mankiw - "Macroeconomics" pg 150
- KevinStud99Lv 61 decade ago
Actually this is a bogus "textbook" question. A trade deficit doesn't cause b or c, and a little look at history shows that there have been times when the dollar massively gained value in times of deficit, and other time like today when the dollar significantly weakened in times of a deficit.
But I imagine the so-called 'correct' answer is D.
- PamelaLv 44 years ago
It goes beyond that. They have quietly set themselves up to be THE uncontested world power with their monopoly on thorium production. Thorium is the future of energy and technology and the Chinese own it and have reduced exports by 95% until 2015. Everything from missle guidance, clean energy, and hard drives will require thorium mining very soon. Why do you think the Chinese have basically invaded Africa? They are way ahead of the game compared to anybody else on the planet.
- 1 decade ago
US trade deficit is the result...of our general lack of competitiveness...it is the measurable definition as to our position in the world as a source of demand or a source of supply...
It is only a measurement...a,b,c,d are caused by something other than a definition...it's like saying cookies cause teeth to rot because, by definition, cookies have sugar...its actually eating the cookies that causes the problem...
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- NCLv 71 decade ago
d, but in reality the influence of trade balance is minor compared to that of real interest rate...
- Uncle PennybagsLv 71 decade ago
The answer is D. Just like any resource, when you have more and more of it, it's inherent value becomes less.