Question

10. Why is it not possible for all countries to follow a demand-focused(eexpansionany) goue strategy? How did differing growth strategies across economies with global t current account imbalances emerge in the pre-crisis period?

Answer 1

It is practically not possible for all nations to have expansionary fiscal policy ot maintain growth curve. Becausr this can lead to higher prices year in year and hyperinflation as benchmarking across globe.

Hence economies maintain mix of expansionary and contractionary fiscal/monetary policues depending on situation to maintain economic stability.

In pre crisis period before 1932, major economies like US emerged as expansionary and visionary economy by extending geographical territory and keeping expansionary fiscal and monetary policies to increase GDP and world grade market share. As results interest rate decreases due to expansionary monetary policy leading to depreciation of US dollat against major currencies like Pound and Euro.

Hence exports started rising from US and Imports rose in EU causing trade surplus in US and trade deficit in EU and hence world was in current account imbalance in 1900 to 1914 period.