Final answer:
Option B is answer. An increase in the U.S. trade deficit causes a decrease in the current account balance because it reflects a higher outflow of funds to foreign markets as imports exceed exports.
Step-by-step explanation:
If the trade deficit of the United States increases, the current account balance is affected by decreasing (b) It decreases. This decline occurs because the current account balance includes the trade balance, which measures the difference between a country's exports and imports. When a country has a trade deficit, it means that its imports exceed its exports, leading to an outflow of domestic currency to foreign markets. Therefore, an increase in the trade deficit signifies a greater outflow, which worsens the current account balance.
Historically, from the 1980s onward, the United States experienced growing trade deficits, except for a brief period in 1991 when there was a tiny surplus. Post-recession, there was a noticeable decline in the U.S. current account deficit, attributed to a slowdown in economic growth and a depreciation of the U.S. dollar, which could make U.S. exports more competitive. Nonetheless, the sustainability of these trade deficits is often questioned by economists, as they imply greater reliance on foreign savings to finance domestic consumption and investment.