We are grateful to have you as one of our instructors.

Thank you for the time, efforts,

and expertise that you share with us throughout our learning sessions in this semester.

1. Why would it be useful to examine a country’s balance-of-payments data?
2. Comment on the following statement: “Since the United States imports more than it exports, it is
necessary for the United States to import capital from foreign countries to finance its current account
deficits.”

1. Examining a country’s balance-of-payments data is very useful since it serves as a measure used
by countries to track all international monetary transactions over a given time period. This data
also reveals the financial health as well as the economic situation of the country. It will help the
government make informed decisions, impose proper policies, rules and regulations, and
formulate well-crafted strategies that will support the country to achieve its desired growth,
development and sustainability. By thoroughly examining its BOP statement and its
components, one can spot trends that may be advantageous or detrimental to the county's
economy and, as a result, take suitable adjustments. The balance of payments of a country
indicates whether it saves enough to cover its imports. It also tells whether the country
generates enough economic output to cover the costs of its progress.

I agree that the United States should import capital from foreign countries to finance its current account
deficits. If the US imports more than it exports or buying more goods and services than it sells abroad, it
just means it runs a trade deficit. This is a serious matter since the nation's trade deficit is equal to the
imbalance between national investment and national saving. As a solution, it must borrow from other
countries to pay for the extra imports. Just like an individual or a firm needs credit to spend more than
its income, the trade deficit requires financing by foreigners. Foreigners finance the trade deficit by
lending to Americans or by investing in the United States. If trade deficits are sufficiently large and
unsustainable, economists believe that they will be associated with a weakening dollar at some future
date. It can distort the United States’ balance of trade and devalue its currency. Maintaining the
appropriate balance of imports and exports is crucial for a country. The importing and exporting activity
of a country can influence a country's GDP, its exchange rate, and its level of inflation and interest rates.
However, the U.S. economy has been doing very well for many years now, making it an attractive place
for foreigners to invest in. So, its chronic trade deficit has not impeded it from continuing to have one of
the most productive economies in the world.

For example, the U.S. trade deficit tends to worsen when the economy is

growing strongly. This is the level at which U.S. imports exceed U.S.
exports. However, the U.S.’s chronic trade deficit has not impeded it from
continuing to have one of the most productive economies in the world.
As a result, they have been willing to finance growing U.S. trade
deficits in the 1990s (Chart 1). While the deficits have reached
unprecedented levels, the dollar has shown no consistent signs
of weakening over this decade (Chart 2). Thus, trade deficits can
be sustainable for a very long time, making the short run
relationship between trade deficits and the dollar very tenuous.