The current account in a state is recognized as a country's trade balance, together with direct payments and net income. The current account evaluates the international exchange of capital. It is always in balance, especially when the state's residents have enough funds for purchases in the country (Minsky, 2019). The capital account, according to international macroeconomics it is identified as a balance of payments that records or reports all forms of transactions carried out in a country with the rest of entities across the world. The financial account in microeconomics is an element in a state's balance of payments that include claims on liabilities to those who are not residents, especially concerning financial assets.
Globally, 50 years ago, the U.S was recognized as the world's powerhouse of exports. However, scholars have discussed several consequences and causes of steady progress in the U.S trade deficit ()Minsky, 2019. During these times, a master economic would explain the cause of trade deficit as in the U.S would sometimes purchase more goods from foreign countries than they sell to them. It is not healthy for the U.S to be a long term trade deficit country. Minsky (2019) argues that a strong dollar would enable American consumers to afford more foreign products while making domestic products more expensive. On the contrary, a more prolonged trade deficit leads to a growing U.S economy because of the increased purchasing power for foreign goods.
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When the U.S is a trade deficit country, its balance of payments must be zero or close to zero when the capital account is broadly explained or defined. It is due to every credit in the current account has a corresponding debit in the capital account and the other way round (Minsky, 2019). A possible export (current account transaction) effectively earns a country a foreign capital for every product that is transacted (capital account transaction).
References
Minsky, H. P. (2019). Financial interrelations, the balance of payments, and the dollar crisis. In Debt and the Less Developed Countries (pp. 103-122). Routledge.
