The United States Savings And Investments

1918 Words8 Pages
A trade surplus occurs when there is positive difference between the United States savings and investments. This means that the United States in this instance has exported more than it has imported to the rest of the world. A positive current account also suggests that the United States’ net assets will be increased by $2,399 million. The capital account deficit implies that there is money flowing out of the United States and that the nation is increasing its ownership of foreign assets. The surplus in the current account exceeds the capital account deficit; therefore, the balance in the reserve account should be $2,484. It is important to mention that this figure includes the possibility of small errors and omissions.

1(b). What are the
…show more content…
(e.g. what was the impact of the Suez crisis?)

In terms of the effects of the Suez Crisis, after oil exports from the Middle East were disrupted, this gave America the opportunity to export oil to its Allies, which effectively increased its exports. This had the effect of increasing the current account as America effectively capitalized on the oil shortage by exporting it to their allies.

The creation of the European Economic Community (EEC) also had effects on the free trade. As European countries began to discuss tariff decreases, the process was also conducted on a product by product basis with lengthy progression. However as European countries began to trade with each other, the aggregate demand for American goods dropped relative to the increase in demand for each other’s goods.

Under the Bretton Woods system, members of the EEC did not need to worry about converting their currency into gold. EEC members were also able to take advantage of using unconvertible currencies and devaluing their currencies to correct for problems with their balance of payments.

For the United States, keeping conversion available as well as defending its par value, as well as having unrestricted capital flows created economic turmoil for the United States moving forward. As a result of free trade and economic advancement in Europe, demand for US dollars began to decline for investment, and thus a glut of US dollars on the market, which forced the Central Bank to make up for
Get Access