Which of the following is a cause of recent United States trade deficits?
- a) Increased foreign incomes
- b) Stagnant incomes
- c) Lower U.S. incomes
- d) Increased U.S. incomes
Trade deficit
A trade deficit is defined as a state whereby a country’s imports is more than what it exports. This means that a country spends more on buying goods from other countries than it earns as revenue from the sales it makes to other countries. Trade deficit reduces a country’s saving due to much amount of money being channeled to acquiring products. This has an impact on the citizens as it pushes them to a lower income bracket as it reduces their income.
Answer to the Question
The increase in the dollar value is what mainly caused the recent trade deficits in the United States. A rise in the dollar meant that goods in the U.S. went for a much higher price than goods in other countries. This meant that other countries prefer trading with other foreign countries that had their prices favorable, as their products are not expensive. Therefore, the U.S. lacked income that could be earned from international trade, meaning that the level of income in the U.S. also declined, affecting its economy as a state.
The right answer is, therefore (C)