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article on the United States’s current account deficit

A Peek at the U .S . Current Account Deficit

Current Account and Net Financial Inflow (answer to question 5

The Current Account is defined as the sum of net sales from trade in goods and services , net factor income (such as interest payments from abroad , and net unilateral transfers from abroad ' When net sales from abroad is positive , the current account is said to be in surplus Otherwise , there is current account deficit (Wikipedia

The Net Factor Income or Income Account is a subaccount of current account . Its various subcategories are related

to certain corresponding subcategories in the HYPERLINK "http /en .wikipedia .org /w /index .php ?title Financial_Account action edit " \o "Financial Account " Financial Account . It is from these links that central banks and economists determine implied rates of return on the various kinds of capital exchanged in the Financial Account (Wikipedia

On the other hand , financial account is defined as the net change in foreign ownership of domestic assets ' The domestic country is said to have a financial account surplus when at a certain year , foreign ownership of domestic assets has risen faster than domestic ownership of foreign assets . Otherwise , the domestic country is said to have a financial account deficit (Wikipedia

Since the Balance of Payment Identity basically states that the sum of the Current Account , the Financial Account , and Changes in the Official Reserves must be equal to zero , any deficit in the Current Account must be balanced by a Surplus in the Financial Account , and Changes in the Official Reserves . However , the changes in official reserves is sometimes approximated as zero since the usual case in US is that it is negligible relative to the Current Account and the Capital Account Thus , when the current account is in deficit , the surplus in financial account balances it . And as have been taken note above , there will only be financial account surplus if net financial inflows exceed outflows Thus is the relation of current account to net financial inflows . In fact , the BOP identity operates under the basic principle that a country can only consume more than it produces (a current account deficit ) if it borrows from foreign sources (a financial account surplus ' For instance , US balances its current account deficit through a substantially larger rate of return from foreign capital (net financial inflow ) over that of the returns of foreigners from domestic capital (Wikipedia

However , financial account inflows id not necessarily the one that always responds to a deficit in current account . Whatever changes happens to both set of transactions will induce the other to respond The manifestation of the other way happened during the late 90 's , when in response to attractive financial opportunities in the US , net financial inflows grew . This caused a dollar appreciation , which in turn caused current account deficit to widen . That was an instance when current account deficit was the one that responded to the increasing financial inflows (Humpage

U .S . Current Account : A Deficit Problem (answer to question 2

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