Can someone help me anwser this question:
How is the U.S Budget Deficit Related to the Trade Deficit?
2006-11-16 02:11:16 · 4 answers · asked by Adam S 1 in Social Science ➔ Economics
The government's deficit is financed with bonds. This is part of our balance of payments when foreigners buy lots of bonds, affecting our net international investment position.
2006-11-16 03:30:55 · answer #1 · answered by ideogenetic 7 · 0⤊ 0⤋
They aren't related.
The US Budget deficit is the US government spending more than it receives in tax revenues, and making up the difference by selling bonds.
The Trade Deficit is people and companies buying more products and services from other countries, then the rest of the world is buying from us.
2006-11-16 12:22:48 · answer #2 · answered by Uncle Pennybags 7 · 0⤊ 0⤋
When there is budget deficit, interest rates rise. This rise attract more foreign investors to the US bonds. When investors enter the US bond market they have to convert their currencies into USD. Therefore, the demand for USD increases and USD appreciates against other currencies. Consequently foreign products become cheaper in US due to the appreciation of USD and imports rise, which in turn raises the trade deficit.
2006-11-16 14:36:54 · answer #3 · answered by daniel_cohadier 3 · 0⤊ 0⤋
Basically they both are deficits!
2006-11-16 10:32:07 · answer #4 · answered by Sami V 7 · 0⤊ 1⤋