Twin Deficits

Topic

Twin Deficits

Instructions

Write a 2-page paper, double spaced to answer the question below. Your definitions of all the economic terms used must be clear and precise. Your paper must emphasize all the relevant linkages and interrelationships between the different economic variables used in your answers.

Question: During the 1980s, the US experienced “twin deficits” in the Current Account and Federal Budget. Since 1998, the US Current Account deficit has grown steadily along with rising government budget deficits. Do Government Budget Deficits lead to Current Account Deficits? Identify other possible sources of the Current Account Deficits. Do Current Account Deficits necessarily indicate problems to the US economy?

Answer preview

A budget deficit is usually a financial health indicator whereby the expenditures surpass the revenues collected. In a situation where a government budget is identified, the current expenses typically surpass the level of income earned through standard operations (Carbaugh, 2015). It usually arises in response to certain unanticipated activities such as an increased spending on defense after a terror attack, and it may decrease during economic prosperity since the revenue increases, low levels of unemployment and high growth rate reduce the need for expenditure on the government programs.

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