Global perpective of macroecomonics - Essay Example

The following diagram shows how the current account balance in the US economy had depended upon the trade balances of the nation over the years. Of all the three components of the current account, viz., trade balance, income balance and the transfer payments, the trend in the current account balances of the economy is significantly related to that of the trade balances. Hence, any deficit in the trade balances will seriously hamper the current account balance values of an economy. Since the current account balance determine the current financial asset position of an economy, a depreciating value will imply a poor status of the same that will affect the amount of financial investments into the nation and thus prospects of potential future growth.

The sake of the present as well as the future of an economy is the reason for an appropriate monitoring of the trade balance status of the economy. The US economy at present is suffering from the problem of high trade deficit which must be taken care of urgently. This paper tries to focus on the causes behind the trade position of the nation, the consequences that it has on various aspects of the economy and the steps that the Federal Reserve has implemented in this regard. Trade deficit in USA, as the adjoining table suggest is found to be increasing over the years.

It is also obvious from the table that, the imbalance or rather deficit is primarily due to a hike in the import purchases rather than a fall in exports. There had in fact been a significant increase in exports between 2001 and 2006, but the proportion of imports is found to have outgrown that of the exports within the nation. 1) A trade deficit in the US has often been argued by economists to be an outcome of a savings-investment imbalance within the nation. When the country had been going through a fall in aggregate savings compared to the investment potentials of the nation, other economies had been witnessing just the reverse