Elements of The Global Economy Essay

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The current account deficit of the U.S. has been growing at an increasing rate due to factors such as high oil prices, imports growing slightly faster than exports, and the low U.S. savings. We should be concerned over the long run because these trade deficits are overwhelmingly large in comparison to U.S. GDP and to the small U.S. export base. This concern in increasingly large deficits implies an even greater increase in the U.S. net external indebtedness and external balance. U.S. has sometimes relied on dollar depreciation to reduce the current account deficit. This passive approach suggests that a dollar depreciation of approximately six percent for a few years would be necessary to produce the same reduction in …show more content…
The Gold Standard was helpful in guaranteeing that any amount of paper money would be able to be redeemed by the currency’s government for the value in gold. This standard increased the trust needed for trade due to the value paper currency now held. After the war, most countries went back to the Gold Standard at the pre-war gold price, mainly because those who loaned in nominal amounts wished to recover the exact gold value they had lent. Deflation’s impact is difficult on sectors of economy that use loans to finance activity on a regular basis or that are in debt. Deflation was the cause of the stock market crash of 1929 because deflation destroys the price of commodities while increasing the value of debt.
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China has the economic potential to become the dominant economy in forty years. China is the biggest, and the fastest growing emerging market. China has changed its political system to contain global capitalism, and therefore has a high chance of becoming the dominant global supplier of manufactured goods and services. In order to enter the world economy, China has initiated economic and political reform. To be able to compete, China has emphasized education, foreign investment, and domestic consumption and entrepreneurship. China has already made its presence known in the service and manufacturing sector globally as developed economies worldwide have noticed.

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