causes and significance of current account deficits Flashcards
structural/supply
under investment causes…
- low productivity
- high labour costs
structural/supply
relitavley low productiviy caused…
businesses less competitve which means that prices and corporate profits rise, while workers’ wages decrease
structural/supply
low levels of innovation
a loss of productivity, reduced customer engagement so causes a decline in profits
cyclical/demand
over valued exchange rate causes…
a high currency which increases the price of exports (SPICED) strong pound imports cheap exports dear
cyclincal/ demand
boom in domestic demand causes
customers spending more money and sucking inn imports as a result
cyclincal/ demand
recession in key exports markets causes…
reduction in the total value of exports
cyclincal/ demand
slump in global prices
if a country is dependant on a particular comondity such as coffe or oil, and the demand for it goes down, there would be less value for the exports.
cyclincal/ demand
increased demand for imported technology
this happens when a country is growing particularly fast and needs an increase in imported technology to support demand
significance of current account deficit
net output of AD from circular flow
this is a drag on a nations GDP growth
significance of current account deficit
loss in jobs in export sectors and industries affected by rising imports
this is a negative mulitpier effect
significance of current account deficit
fall in forign exchange reserves
this can be problematicfor smaller developing nations whi struggle to attract financial capital
significance of current account deficit
can lead to exchange rate weakness
reducing real limiting standards and increaseing investor risk - higher yeilds fof govt. debt
