Elements of The Global Economy Essay

2119 Words 9 Pages
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
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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.
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.…