Assume a U.S. firm buys (imports) $5 million (in U.S. dollars) of foreign goods. That transaction by itself increases the trade deficit by $5 million. But, the $5 million will flow back to the United States to purchase either (i) U.S. goods and services or (ii) U.S. assets. • How does the way the $5 million comes back to the United States determine whether there will be balanced trade or a trade deficit? • How does the U.S. economy benefit from either transaction (the foreign purchase of U.S. goods and services [exports] or the purchase of U.S. assets)?
Assume a U.S. firm buys (imports) $5 million (in U.S. dollars) of foreign goods. That transaction by itself increases the trade deficit by $5 million. But, the $5 million will flow back to the United States to purchase either (i) U.S. goods and services or (ii) U.S. assets. • How does the way the $5 million comes back to the United States determine whether there will be balanced trade or a trade deficit? • How does the U.S. economy benefit from either transaction (the foreign purchase of U.S. goods and services [exports] or the purchase of U.S. assets)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Assume a U.S. firm buys (imports) $5 million (in U.S. dollars) of foreign goods. That transaction by itself increases
the
and services or (ii) U.S. assets.
• How does the way the $5 million comes back to the United States determine whether there will be balanced
trade or a trade deficit?
• How does the U.S. economy benefit from either transaction (the foreign purchase of U.S. goods and services
[exports] or the purchase of U.S. assets)?
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