a. What implications do the U.S. current account deficit (negative net exports) and our reliance on foreign credit have for economic performance in the United States?
b. What policies, if any, should be used to address this situation?
The U.S. economy appears to be performing well: Output growth has returned to healthy levels, the labour market is firming, and inflation appears to be under control. But, one aspect of U.S. economic performance still evokes concern: the nation’s large and growing current account deficit [negative net exports]. Most forecasters expect the nation’s current account imbalance to decline slowly at best, implying a continued need for foreign credit and a concomitant decline in the U.S. net foreign asset position.