Current Account Balance

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1. Between 1990 and 1991 the U.S. received financial cash grants of $60 billion from allies for the U.S. costs of fighting the Gulf War. How did these cash grants affect the current account balance? What would the current account balance have been if the U.S. had not received these one-time cash grants?

2. The current account deficit reached record levels in the U.S. in 2002. What sort of changes in the economies of the U.S. and its major trading partners would cause the U.S. current account deficit to increase to record levels? Make an exhaustive list, then access the Updates page and read the explanation offered by the U.S. Information Agency.

3. How do you think the OPEC oil price shocks of late 1973 and early 1974 affected the U.S. current account balance? Write down your thoughts and then access the Internet site for the U.S. current account balance and plot the "change from last year" for 1973 and 1974. Was your explanation consistent with the actual change in the U.S. current account balance?

4. Since approximately the mid-1990's there has been a direct relationship between the US current account balance and the value of the dollar relative to the Japanese yen. Using materials from the Internet and your classroom textbook, construct an argument that helps explain why the value of the U.S. dollar relative to the Japanese yen might tend to rise when economic growth in the U.S. is weak (or negative), and fall when U.S. economic growth is strong.

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