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Describe how Trade Deficits/ Surpluses Can Influence the Growth of Productivity and GDP

Trade Deficits
Trade Deficits

Trade Deficits/ Surpluses

Describe how Trade Deficits/ Surpluses Can Influence the Growth of Productivity and GDP

Trading deficits exists whenever a company imports more of goods and services as opposed to its exports. Countries under deficit as McCombie & Thirlwall (2016) explains may want to depreciate their currency as part of a move to increase the level of exports and to balance the trade. Trade deficits affect the economy of a country by increased job loss since manufacturing companies have to give up their capacity to produce, as there are cheaper products from abroad.

In US, such deficits lead to income inequalities especially when local firm invest in foreign countries. The downside of this is that the suppression of wages and the fall of the prices of the local products tend to affect the bargaining of the firms. There are other disadvantages such as the weakened productivity since firms cut back on the level of research involved towards the production of products. Lack of research in turn leads to stagnation, which affects negatively the GDP. Economists argue that the US government should support the excessive national venture over reserve with the influx in the foreign capital and counterbalance this with the existing deficit.

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Describe how Trade Deficits/ Surpluses Can Influence the Growth of Productivity and GDP

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