Balance Of Deficit In Global Economy

1344 Words 5 Pages
nce of payments refers to the manner in which each nation records economic dealings with other countries. As balance of payments is a double entry accounting concept, all debits and credits must balance at the end of the period. In some cases countries will run an account deficit, which means they maintain an excess of imports over exports in goods and services, investment income, and unilateral transfers (Carbaugh, 2015). The European Union (EU) is one of many entities facing such a deficit and financial struggles. Presented is an analysis of EU’s financial struggles, a comparison to the United States (US), and how the deficit impacts economic growth.
Balance of Payment Countries operating in the balance of payments (BOP) fiscal recording
…show more content…
According to Constantine (2014) “the essential argument is that a budget deficit in one country increases its interest rates relative to the rest of the world, which encourages capital inflow that appreciates its exchange rate” (p. 62). For example, if foreigners buy up more US goods than the US does theirs, then the dollar will become more expensive in the exchange market (Carbaugh, 2015). Therefore, goods and service will become more expensive for foreign markets which equal fewer exports and foreign products become less expense for Americans meaning greater imports. Moreover, a current account deficit is the result of capital flows and supports import increases and export decreases which will have substantial influences on the overall global economy every …show more content…
When countries debits are more than their debits, they begin operating in a deficit position or financial outflow. As the majority of the world has established global economic integration, any countries changes in these positions have the potential to affect the stability of the global economic status. Because the US is a large influence in the global economy, they have been able to sustain a BOP deficit for some time. On the other hand, evidence has shown that EU might not have the same ability to sustain a long run external deficit in the future. Success and growth truly does come down to the ability to balance inflow and outflow of the countries’

Related Documents