cad

A detailed Summary of cad

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 purchase (imports). When we borrow from them we have to pay interest rates and these are additions to the original debt, therefor they increase the total debt owed. It is considered a bad thing to have an increasing current account deficit because we are borrowing from other countries and then repaying them even more, due to interest rates. We are increasing the flow of money out of our economy and into a foreign economy. Another reason why an increasing current account deficit is considered a bad thing is because it affects the exchange rate, as a reduction in the Australian dollar restricts the things we import. b) What are the main reasons for Australia experiencing a sustained CAD? Australia is experiencing a sustained current account deficit for many reasons. These reasons include: high interest rates, worsening terms of trade, high consumer spending and less saving, inflation, variations of the exchange rate, freight and tourism and interna

tional competitiveness. The first reason is the fact that interest rates on existing debt are high as well as the fact that we don't save enough, adds a considerable cost onto the final debt. Higher interest rates drive us further into debt than we began with, leading to a greater debt. Second is 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. If workers wages don't match the level of productivity, then businesses don't match overseas performance. This loses international competitiveness, another factor contributing to the current account deficit. Freight is also a reason why the current account in Australia is sustained. Australia is such an isolated country and doesn't have a major shipping line. Therefore we must pay transport costs as well as higher insurance rat

Some common words found in the essay are:
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Approximate Word count = 849
Approximate Pages = 3 (250 words per page double spaced)

Category: Politics

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cad

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