current account surplus

Question 1

demand-side and supply side causes of surplus

Answer 1

-demand side: high incomes abroad, low incomes at home, weak exchange rate
-supply-side causes: low relative inflation, strong investment, gains in comp advantage new resource discovery

Question 2

consequences of current account surplus

Answer 2

increase in AD (rise growth, unemployment decrease but d-pull inflation
-appreciation exchange rate
-financial account deficit (buy up bonds)
-can harm international relations (excessive consumer switching0