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The U.S. Economy of Euro Falls - Research Paper Example

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The U.S. Economy if Euro Falls Prior to the euro crisis, the currency has been positively viewed by financial experts and economists alike. One study considered the euro to be highly competitive with dollar, to extent that sometime in the future, the dollar will not just be the international currency, but the euro also along side the yuan (Jayakumar & Weiss, 2011)…
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Download file to see previous pages The conclusion Teulon (2011) garnered was also accordance with that of Calomiris (1999): that the probability of the fall of euro is high. For Teulon (2011), the question is no longer whether the euro will survive, but rather on how long the euro will last. With the threat of the impending fall of the euro, one of the important questions that this leads to is its effect to the dollar. In the event the euro will fall, will this affect the economy of United States? This inquiry aims to give some answer to this question. International trade in this globalized world is highly efficient. It is through engaging in the global commerce that a local economy is affected by the economic performance of its trading partners. The exchange rate of the local to the international currency is important since this determines the prices of goods and services from abroad in terms of the local currency. Hence the exchange rate of euro to the dollar plays a significant role in the trade that occurs between them. The countries included in the European Monetary Union are also the trading partners of the United States. The members of the E.M.U. are the following: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, and Spain. Table A (found in the Appendix) shows the trade in goods of the United States with each country of the E.M.U in 2011. The country imports more goods from the euro area by 87,860 millions of dollars than it exports there. This data might show that somehow, the U.S. depends a little on the products of the euro area for its consumption. As a source of income however, the country doesn’t depend there too much since it buys more from them than what it was able to sell to them. Nevertheless, this data only shows the trade of the U.S. with the euro area. Let us consider another set of data so a more meaningful analysis can be done. Table 1. U.S. Gross Domestic Product for 2011* Component of G.D.P. $ Billions % of G.D.P. Consumption 10,726.4 0.71 Investment 1,914.6 0.13 Net Exports -576.9 -0.04 Government Expenditures 3,030.2 0.20 G.D.P. 15,094.4 100 Table 2. The Net Exports of the United States for 2011* $ Billions % of G.D.P. Exports 2,087.5 0.13 Goods 1,474.4 0.09 Services 613.2 0.04 Imports 2,664.4 0.18 Goods 2,238.0 0.14 Services 426.4 0.03 Net Exports -576.9 -0.04 *Source: Bureau of Economic Analysis. 2012. Gross Domestic Product and Related Measures: Level and Change From Preceding Period. GROSS DOMESTIC PRODUCT: FOURTH QUARTER AND ANNUAL 2011 (SECOND ESTIMATE). Retrieved from http://www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp4q11_2nd.pdf Table 1 shows important information about the economy of the United States. First, the country is not dependent on international trade for its income or output. The net export is -.04 percent of G.P.D. The country spends more rather than gaining more from it. Since the data used for the trade between the U.S. and E.M.U. countries has been on the net exports on goods only. From Table 2 we can infer that the net export on goods is equal to -763.6. The U.S. does not earn more dollars in trading with the E.M.U. countries. Instead, it is the euro area that gains more from its trade with U.S. amounting 87,860 millions of dollars in 2011. From these data we can see that in the event that euro falls, the economy of th ...Download file to see next pagesRead More
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