Causes of CAD

Question 1

what is the differenec between cylical and structural causes

Answer 1

cyclical: temporary/frequently changing (explaining changes in trade balance)
structural: permanent and changes gradually (mainly effect income balance)

Question 2

what are the 5 cyclical causes of CAD

Answer 2

1. growth of domestic business cycle
2. decrease in world business cycle
3. fall in aus exchanges rate (Aud falls)
4. COmmodity prices/ ToT
5. Relative Inflation

Question 3

what are the 3 structural causes of CAD

Answer 3

1. increased foreign investment
2. foreign liability
3. savings/investment gap

Question 4

SI GAP: when will a CAD occur and what can affect it

Answer 4

if a nation;s imports and income paid overseas > value of its exports and income recieved from overseas.

• commodity prices
• inflation rate

Question 5

what is the equation for CAB

Answer 5

CAB = S - I (cab is the difference between total savings (imports and outbound income) and total investment (export and income paid to aus)

Question 6

what is S> I and S <i></i>

Answer 6

1. surplus

2. deficit

Question 7

Why does Aust usually have to rely on overseas savings?

Answer 7

aus is small economy in terms of population and is not able to generate enough savings to fund investment needs to develop sectors of the economy (mining and energy)

Question 8

why is the idea ‘ aus is a low savings nation’ a myth

Answer 8

we have the same or higher savings as UK and US but we need more investment thereofre CAD