Hello, thank you for your help!!! Which of the following contributed to the risi

Question

Hello, thank you for your help!!!

Which of the following contributed to the rising U.S. trade deficit between 1997 and 2005? Check all that apply. Decreased saving by a major U.S. trading partner A substantial decrease in the saving rate in the United States A sharp increase in U.S. imports from china without a large increase in exports to china Which of the following statements supportthe view that the trade deficit is a problem? Check all that apply. The United States will need to undergo significant economic adjustments as the government begins to pay off foreign investors claims on American assets. The trade deficit arises because foreigners want to invest in the United States. Acurrent account deficit is the result of a capital account surplus. U Americans save too little while consuming too much.

Explanation / Answer

Question 1.

The US trade deficit has risen considerably between 1997 and 2005 due to following two reasons -

1. During the given period US savings rate has actually declined. This implied rising consumption rate and widening trade deficit.

2. During the given period US trade with China has increased tremendously but is skewed more in favor of imports from China than exports to China leading to widening trade deficit.

Hence, options (2) and (3) are correct options.

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