Economics - BOP

Question 1

Factors affecting CAB

Answer 1

1. Interest rates differential
2. Relative inflation rates
3. Exchange rate
4. TOT
5. Supply Shocks
6. Domestic growth
7. Global Growth
8. Level of domestic savings
9. WCP

Question 2

Why CAS?

Answer 2

• WCP has increased (iron ore, coal)
• China ramped up construction to support the economy suffering from trade wars
• growth in Asia (global growth)
• depreciation (exchange rates)
• retirement savings (level of domestic savings)
• low interest rates

Question 3

Why CAD?

Answer 3

• could be a result trade deficit
• M over X (not necessarily a bad thing, sign of a healthy economy)
• X over M (growth in trading partners, increase in WCP,, depreciation of AUD)
• I-S gap