Essay On Fraternities In College Life
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Essay On Fraternities In College Life
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A Subject: 034: Science: Sociology
A Title: Foreign Trade/Current Account Deficit
papers = Please put your paper here.
Economics Essay: Foreign Trade
a) Explain what is meant by a Current Account Deficit and why is it considered 'bad' to have an increasing CAD?
The Current Account Deficit generally means that our nation is spending more than it earns. This means that we have to borrow from other countries in order to pay for the things we purchase (imports). When we borrow from them we have to pay interest rates and these are additions to the original debt, therefor they increase the total debt owed.
It is considered a bad thing to have an increasing current account deficit because we are borrowing from other countries and then repaying them even more, due to interest rates. We are increasing the flow of money out of our economy and into a foreign economy.
Another reason why an increasing current account deficit is considered a bad thing is because it affects the exchange rate, as a reduction in the Australian dollar restricts the things we import.
b) What are the main reasons for Australia experiencing a sustained CAD?
Australia is experiencing a sustained current account deficit for many reasons. These reasons include: high interest rates, worsening terms of trade, high consumer spending and less saving, inflation, variations of the exchange rate, freight and tourism and international competitiveness.
The first reason is the fact that interest rates on existing debt are high as well as the fact that we don't save enough, adds a considerable cost onto the final debt. Higher interest rates drive us further into debt than we began with, leading to a greater debt.
Second is worsening of terms of trade. When import...