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Economics: 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 pur ....
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Middle of Paper
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.... worsening of terms of trade. When import prices rise faster than export prices, the terms of trade will turn against us. We will sell what we make at a cheaper price than what we bought it for.
High consumer spending is another reason for the sustained current account in Australia. If the government spends more than it takes from people (taxes), a deficit budget occurs. This increases consumer spending even though we can't afford it.
Inflation also contributes to the current account deficit as it influences international competitiveness. ....
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