Examples of deficit in the following topics:
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- Surpluses are easier to finance than the deficits.
- Some call a "deficit with tears" because a central bank or government must use its resources to finance it.
- Government or central bank allows the exchange rate to correct any surpluses or deficits.
- Unfortunately, the trade deficit initially worsens before improving.
- For instance, a country is experiencing a balance-of-payments deficit.
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- If a country has a fixed rate regime and experiences a balance-of-payments deficit, please explain how the country must maintain this exchange rate.
- Many foreign investors are worried over the U.S. government's large trillion-dollar deficits, and the U.S. economy is plagued by massive trade deficits.
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- Government finances budget deficits in three ways.
- Could the U.S. federal government affect the monetary base by financing budget deficits?
- Treasury finances a budget deficit by selling T-bills.
- Treasury finance budget deficits.
- However, the Fed can finance budget deficits indirectly.
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- Subsequently, the United States finances this deficit by borrowing from foreigners.
- Current account deficit is large because the United States imported more goods than exported.
- If a country has a current account deficit, then a financial surplus finances this deficit.
- For example, the United States has operated current account deficits for the last 45 years.
- Thus, the U.S. debt and trade deficits go together, and we discuss them under the Hegemony section in this chapter.
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- However, a government budget deficit could lead to money creation.
- If the Fed maintains a constant interest rate, and the U.S. government operates a budget deficit, the U.S.
- Treasury department can finance the deficit by issuing T-bills.
- Consequently, a government budget deficit leads to inflation if a central bank focuses on the interest rate.
- Consequently, a government would suffer from a budget deficit that its treasury can finance by selling government bonds.
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- The IMF helps countries finance a balance-of-payments deficit.
- Balance-of-payments deficit causes a surplus of currency on the international exchange markets.
- If a country devalues it currency, subsequently, the impact does not immediately reduce a trade deficit.
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- Consequently, a gold standard automatically eliminates trade deficits and surpluses.
- Moreover, government could print money to finance budget deficits, but this causes inflation.
- The IMF grants loans to countries that experience balance-of-payment deficits.
- The IMF helps countries that are experiencing balance-of-payments deficits.
- For example, Britain has a balance-of-payments deficit, and it borrows from the IMF.
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- The U.S. government accumulated a large public debt, and the U.S. economy suffers from sizeable trade deficits, causing an outflow of U.S. dollars into the international markets.
- For now, these pieces of paper have value, but some question whether the U.S. government can finance the dual deficits over a long time period.
- A hegemony's trade deficits become a money source for the world's economy.
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- Thus, this country could devalue its currency to reduce its balance-of-payments deficit.
- Unfortunately, the Mexican government could not finance the large trade deficits as it depleted its reserve funds.
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- Consequently, the U.S. trade deficit worsens.