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Microeconomics - Essay Example

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Therefore the US current account deficit include financial borrowing by US citizens, people and businesses from foreign governments, people and financial…
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Microeconomics Current account deficit of a country is a situation whereby a country’s financial borrowings greatly exceed its debts. Therefore the US current account deficit include financial borrowing by US citizens, people and businesses from foreign governments, people and financial institutions. In the year 2010, the US current account deficit stood at $470 billion compared $ 804 billion recorded in 2006 (Bergsten, 2011). The 2010 deficit constituted about 3% of the $ 14.7 trillion recorded the same year.
According to the current global economic situation, the current deficit run by the US is disadvantageous to the country. However, the situation is beneficial to the country in the long term. Currently, US citizens have to cope with high interest rates and high mortgage rates due to the country’s account deficit. The current situation may indicate that the country’s rate of investment is exceeding its GDP. Investment is not a bad thing for the country although it might cause short-term financial strains on the citizens and unfavorable trade balance (Barschel, 2007). However, long-term benefits may propel US to high levels of economic performance.
None of the current economic solutions can be applied to reverse the situation. In order to contain the situation, the government needs to encourage savings and reduce borrowings among its people. This will involve giving people the right education in order to sensitize them on the importance of saving within the country. Increasing tax rates will also reduce borrowing and increase savings. The government also needs to cut the countries imports while it promotes exports. Oil accounts for $140 billion of the total US imports. The government should promote energy conservation and use of alternative energy in order to cuts oil imports and to promote favorable trade balance.
Barschel, H. (2007). The U.S. Current Account Deficit - Whose Problem is It?: A Short Overview. New York: GRIN Verlag.
Bergsten, F. (2011). The Globalization of the United States. Economy: Beyond a Quick Fix. Retrieved from:
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