1.The exchange rate value of the U.S. dollar increased recently. Is it good news
ID: 1096534 • Letter: 1
Question
1.The exchange rate value of the U.S. dollar increased recently. Is it good news or bad news? Why? Should we worry about it?
2.The U.S. has a whopping trade deficit. Why? Should we worry about it? Are we shipping all our jobs to China and Mexico? Could we save precious U.S. jobs by restricting imports from countries with cheap labor? Could we reduce our trade deficit by restricting imports?
3.The U.S. owes the rest of the world $2.9 trillion more than the rest of the world owes to the U.S., making the U.S. "the world biggest debtor nation". Why is this? Should we worry about it?
I have to write essays about these 3 topics. Can you guys give me an idea of the right answers for each of them? Thank you in advance.
Explanation / Answer
1. The increase in the exchange rage causes the US currency to depreciate in the international market. The deprecation of US currency will lead US goods and services to be cheaper, as a result the net export rises. On the other hand, the increase in the exchange rate also increases the value of debt in the international market. If value of exports exceeds those of incremental debt then it would be considered good news, because overall the income in the economy has increased. However, due to rise in the exchange rate if debt obligation exceeds on net, then it would be considered bad news.
2. The trade deficit is of two kinds structural (long-term) and cyclical (short-term). The persistent structural deficit is not good for the economy and as for cyclical it is stabilized through the market forces. Since major portion of trade deficit is of structural deficit, it is worrisome for the economy. Further, if the trade deficit is financed through short term capital flow then it would be dangerous scenario one the eve of slightest downturn.
No it’s not true, not all jobs are shipping out of the US, only those jobs are outsourced which can be done at a cheaper rate. In return, the US economy is also getting benefited from these countries in form of investment, demand for exports, etc.
US should not restrict the imports from other countries to save jobs in the country because by doing so it also giving opportunity to disband the US goods and services in foreign markets. It will be zero-sum game without any countries benefiting from it.
By restricting imports might reduce the cyclical deficit but structural deficit won’t have much effect. On the other hand, it will hurt the economy more than the reduction of trade deficit.
3. It might be due to rapid globalization and successive increase in the trade with the rest of the world. Further, might be due to excessive consumption which has caused over borrowing. The military expenditure on the other hand also significantly raises wasteful expenditure.
Whether this debt will hurt the US economy in the long-run will depend on the type of debt the US carries. If major portion of debt is incurred on productive capacity, which possibly increase the national income in future then the debt will not be considered a threat to the economy. If however if debt consist of wasteful expenditure, which does not promises to give any return in future then this debt would be considered a threat to the economy.
1. The increase in the exchange rage causes the US currency to depreciate in the international market. The deprecation of US currency will lead US goods and services to be cheaper, as a result the net export rises. On the other hand, the increase in the exchange rate also increases the value of debt in the international market. If value of exports exceeds those of incremental debt then it would be considered good news, because overall the income in the economy has increased. However, due to rise in the exchange rate if debt obligation exceeds on net, then it would be considered bad news.
2. The trade deficit is of two kinds structural (long-term) and cyclical (short-term). The persistent structural deficit is not good for the economy and as for cyclical it is stabilized through the market forces. Since major portion of trade deficit is of structural deficit, it is worrisome for the economy. Further, if the trade deficit is financed through short term capital flow then it would be dangerous scenario one the eve of slightest downturn.
No it’s not true, not all jobs are shipping out of the US, only those jobs are outsourced which can be done at a cheaper rate. In return, the US economy is also getting benefited from these countries in form of investment, demand for exports, etc.
US should not restrict the imports from other countries to save jobs in the country because by doing so it also giving opportunity to disband the US goods and services in foreign markets. It will be zero-sum game without any countries benefiting from it.
By restricting imports might reduce the cyclical deficit but structural deficit won’t have much effect. On the other hand, it will hurt the economy more than the reduction of trade deficit.
3. It might be due to rapid globalization and successive increase in the trade with the rest of the world. Further, might be due to excessive consumption which has caused over borrowing. The military expenditure on the other hand also significantly raises wasteful expenditure.
Whether this debt will hurt the US economy in the long-run will depend on the type of debt the US carries. If major portion of debt is incurred on productive capacity, which possibly increase the national income in future then the debt will not be considered a threat to the economy. If however if debt consist of wasteful expenditure, which does not promises to give any return in future then this debt would be considered a threat to the economy.
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