What effects do U.S. trade deficits have on the U.S. economy?
What will be an ideal response?
One of the first effects of trade deficits is to dampen aggregate demand. A trade deficit means that the value of U.S. imports is greater than U.S. exports, which makes net exports negative. Since net exports are one of the four major components of GDP, negative net exports reduce the level of GDP. The other effect of a trade deficit is also negative for the U.S. economy. The trade deficit must be financed by increasing U.S. debt that is held by foreigners. Although domestic consumers benefit from a higher standard of living that is made possible by the increased indebtedness to foreigners, more U.S. companies become foreign-owned and there is an increased outflow of dividend and interest payment to foreigners.
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Refer to the scenario above. If Frank discounts delayed utilities with a weight of 1/4, then which of the following statements is true?
A) He will consume both hotdogs and ice cream. B) He will avoid consuming both hotdogs and ice cream. C) He will consume ice cream but will avoid consuming hotdogs. D) He will consume hotdogs but will avoid consuming ice cream.
Firms may reasonably make a decision to cut prices if
a. profits are not likely to decline. b. marginal profit is not negative. c. MR > MC. d. All of the above are correct.