To further understand the importance of the current account balance, consider the elements that are inflows and outflows. The USA has had a current account deficit for many years now. We “get away” with this because the US dollar is the world’s primary reserve currency.
Suppose we were required to reduce our current account deficit because countries decided to hold fewer US dollars in reserve. What would have to increase? What would have to decrease? What does that mean specifically to American households and businesses and governments? Evaluate the impact this would have on the American economy and its households, businesses, and governments.
Sample Solution
