Question

The United States ran large trade deficits during the 1980s and 1990s. How would you determine whether these trade deficits led to increased or decreased capitalâ deepening?

Answer 1

Answer:

Determine if the trade deficit were used to import investment goods or consumer goods.

Explanation:

Note that the capital deepening occurs when the capital per worker is increasing in an economy. Remember also that, If there is increasing investment in an economy it would thus increase the amount of capital to labour.

Therefore the reason (whether import of consumption or investment goods) for the United States trade deficits during the 1980s and 1990s should be analysed.