Reference no: EM13204116

America's current account (CA) deficit (the trade deficit plus net income payments and netunilateral transfers) rose as a share of gross domestic product (GDP) from 1991 to a recordhigh of about 6% of GDP in 2006. It began falling in 2007, and reached 3% of GDP in 2009.The CA deficit is financed by foreign capital inflows. Many observers have questionedwhether such large inflows are sustainable. Even at 3% of GDP, the deficit is probably stilltoo large to be permanently sustained, and many economists fear that the decline istemporary and caused by the recession.

The U.S. account deficit (in U.S. dollars) is illustrated in the chart below:

Write a 900 - 1200 word paper concerning the U.S. current account. Your paper should be organized asfollows:

• Paragraph One: What is a current account deficit? Specifically, what does it mean that the U.S. isrunning a current account deficit? How does a current account deficit benefit U.S. citizens? Howdoes a current account deficit hurt U.S. citizens?
• Paragraph Two: What offsets the current account deficit? What are the implications for the U.S. ofthis offsetting account? How does this offsetting account (i.e., surplus) benefit U.S. citizens? Howdoes this offsetting account hurt U.S. citizens?
• Paragraphs Three and Four: What are the two main causes of the U.S. current account deficit since1991? In paragraph three, describe one of the causes and why it has occurred and in paragraph four,describe the other cause and why it has occurred.
• Paragraph Five: In your opinion, is the U.S. current account deficit sustainable? Why or why not?(Note: this last question is purely your thoughts about the subject - there is no right or wrong answerto this question).