Assume a u. s. firm buys (imports) $5 million (in u. s. dollars) of foreign goods. that transaction by itself increases the trade deficit by $5 million. but, the $5 million will flow back to the united states to purchase either (i) u. s. goods and services or (ii) u. s. assets. • how does the way the $5 million comes back to the united states determine whether there will be balanced trade or a trade deficit? • how does the u. s. economy benefit from either transaction (the foreign purchase of u. s. goods and services [exports] or the purchase of u. s. assets)?

Introduction:

When a country is importing more than it is exporting a trade deficit occurs. A trade deficit represents an outflow of domestic currency to foreign markets.

Every transaction a country makes with the world is summarized in the balance of payments. The balance of payments has two sub accounts:

The current account: Composed of goods and services

The capital and financial account: Composed of real and financial assets.

Answer 1.

a) The $5 million are used to purchase U.S goods and services.

In this case it is recorded on the current account as a positive number,this transaction compensates the $5 million that were recorded as a negative number and results in balanced trade.

b) The $5 million are used to purchase U.S assets

This is recorded on the capital and financial account  as a surplus but even though this compensates the deficit on the current account, there is still a trade deficit.

Answer 2.

If the $5 million used to purchase foreign goods return as goods and services, it will benefit the nation by creating more jobs and generating more income for American producers.

If the $5 million return as U.S. assets (International investment) they will allow firms to expand and will help to finance the national debt.

muslims have taken his goods and products to different parts of asia an indonesia. sometimes just traveled and trade, but in other occasions, stayed in the place and made a living.

trade was the key for muslims economies to prosper. their commerce routes reached far places like malaysia and java in the 11th century.

another important factor for prosperity was that muslim states served as the middle point for european traders.

they used to travel by land but sailing the seas -the indian ocean- really increase the exportation of products.