Recent U.S. BOP Performance: Is the Sky Falling?
In the case, the sky is falling has two theories that involve the statement that US economical industries are non-competitive in the international market and foreigners are taking the step of buying assets in the US which are valuable and making a country a debtor in the history of world economy.
In this condition, everything seems so wonderful from the top, which also has a meaning, that foreigners are much fascinated with the US market’s future prospects. It also depicts the democracy of economy that the investors are eagerly investing in US economy. All this can be done by running a surplus of the current account in the United States (Griffin and Pustay).
The answer to this question depends on the two separate opinions based on the point of view a person has. In one case if the person thinks that the indication from Balance of Payment (BOP) of the last decade is becoming less competitive in the foreign markets or other case a person has a viewpoint that the BOP of United States indicates a better position relative to the foreign competitors. It can be said that the ones with a former point of view might have argued over the exports of US that exports have a major role in the US economy. On the other hand, the ones who feel that the prospects of US are very attractive, and that is why the country is attracting investment believe that inflows of foreign capital are more important.
The opinions make a conflict between both the scenarios between the believers that say the sky is falling are the people who want to see the reduction in balance of trade deficit, which can be done by calling training programs for the workers, increase the investment in infrastructure, tax credit for the departments of research and development expenditures of investment.
The people who have a belief everything is wonderful believes in the continuation of the policy of making United States as an attractive economy for investors and invest in the economy by keeping low tax rates and modest regulation of government. In this case, there might be many people who will be benefited by one or another. Those who have a feeling of import as a threat to have an account surplus is the best thing for them. The firms based on the business of export and workers associated with the policy of free trade are the promoters of the theory ‘everything is wonderful’ as they belong to the communities that take benefits from the jobs created by inward foreign direct investment.
7-22.
The connection between the US current account deficit and capital account surplus can be explained as the capital account surplus of the United States recorded a surplus on an annual basis that is approximately the same as the account deficit. At the time, it is also documented that the account deficit is also recorded as large as the annual deficit in the last decade. The account of capital is calculated by netting the investment of public and private investors within the premises of the country with those that are used and making outside the country by the government and local companies. It can be understood by the example that in order to calculate the capital account, one must net foreign direct investment in the country with the FDI that are made in other countries as well by the businesses and government.
Furthermore, other inputs in the capital account also include the accounts in bank and amount of changes in the domestic and foreign stock, bond and currencies holders. The calculation of current deficit of the country is the imports of the trade value of goods and services exceed the trade value of goods and services it exports.
It also includes the net income, like interest and dividends and also the transfers such as foreign aid. It is also a fact that these components are in smaller percentages than imports and exports. The calculation of current account includes the foreign transaction of the country, and the capital account is a part of the balance of payment of the country (Carbaugh).
7-23.
In my opinion, the firms such as producers of textile and the workers in textile, as well as a cash-starved biotechnological company of California and Merrill Lynch Boeing Aircraft that are threatened by import are the largest exporters of the country. The consumers come under the sky is falling view that are mostly exporters will not endorse the view. In this case, the workers in the industry of textile will benefit with the promoted policy of free trade and consider that everything is wonderful. However, the import threatened firms will endorse the situation as the consumer would likely to have cheaper products and availability in their country, so they would probably support the imports in the country by resting on the variation side of everything is wonderful.
Works Cited
Carbaugh, Robert. International Economics. Mason: Cengage Learning, 2012.Print
Griffin, Ricky W. and Mike W. Pustay. International Business: A Managerial Perspective. New York: Pearson Education, 2014.Print
