Explain the major causes of the persistent trade deficits in the United States in the past decade.
What will be an ideal response?
The persistent trade deficits in the United States in recent years were the result of several factors. First, there was more rapid growth in the domestic economy than in the economies of several major trading partners. This factor caused U.S. imports to rise more than U.S. exports. Second, the United States developed a large trade imbalance with China. Third, high oil prices tend to aggravate U.S. trade deficits because the United States imports most of its oil. It is estimated that in 2012 the United States ran a $99 billion trade deficit with the OPEC nations. Fourth, until the severe recession of 2007–2009, there was a decline in the rate of saving and an increase in investment as foreigners purchased more U.S. real and financial assets. This surplus in the capital account allowed Americans to consume more imported goods. Fifth, U.S. real and financial assets are often viewed favorably for the relatively high risk-adjusted return they offer.
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Graphically, a kinked demand curve is
a. more elastic to the right of the kink than to the left b. more inelastic to the right of the kink than to the left c. more inelastic to the left of the kink than to the right d. present when there is a monopoly e. bowed-in or bowed-out, depending on the kink
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a. Substitute goods b. Inferior goods c. Complementary goods d. Economic goods
The incentives to work that result from the existence of private property accrue to
A. neither the weak nor the strong. B. both the weak and the strong. C. only the strong. D. only the weak.