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Essay help!! Current account deficit (1 Viewer)
- Thread starter grom11
- Start date
1) Australia has low national savings
This means financial institutions have to import foreign capital in order to supplement the lack of domestic capital. The interest from loans shows up on the net primary income as a debit, putting downward pressure on the CAD.
2) Structural issues within the Australian economy
Australia's economy is based on STM's not ETM's. This means that even when export conditions for commodities are ideal (ie commodities boom) the economic prosperity brought by this involves increasing imports because Australia has to import ETM's as they are not domestically produced, this shows up on the BOGS as a debit forcing the CAD down.
3)High foreign investment in Australia
Lots of foreign investors like to invest their money in Australia. We provide reliably and safe returns on investment. However, this investment worsens the CAD in the long as the returns to foriegn investors apply as a debit on the net primary income, forcing the CAD down.
Hey, I'm not too sure if this is right but you might be able to talk about some the following
- Australia's constant net primary income deficit due to
a)value of the exch rate (a depreciation will increase the $A value of debt, hence increase interest servicing costs
b) global and domestic interest rates as any changes to interest rates will again impact the value of debt service
c) Australia's large savings and invsmt gap as said above (we are historically low savers and we fund our capital invsmt through international borrowing (increasing interest repayments) or selling ownership in Australian assets (increasing foreign equity payments in the form of say dividends)
- BOGS deficit can occur from
a) level of economic growth especially high economic growth = more disposable income, more M and then BOGS deficit will occur and
b) changes in the international business cycle as poor growth in major trading partners means decrease in level of demand for X and therefore BOGS deficit and similarly we M more (BOGS deficit once again)
Best of luck with your essay, I think CAD, ext stability and net foreign debt are going to do my head in
- Australia's constant net primary income deficit due to
a)value of the exch rate (a depreciation will increase the $A value of debt, hence increase interest servicing costs
b) global and domestic interest rates as any changes to interest rates will again impact the value of debt service
c) Australia's large savings and invsmt gap as said above (we are historically low savers and we fund our capital invsmt through international borrowing (increasing interest repayments) or selling ownership in Australian assets (increasing foreign equity payments in the form of say dividends)
- BOGS deficit can occur from
a) level of economic growth especially high economic growth = more disposable income, more M and then BOGS deficit will occur and
b) changes in the international business cycle as poor growth in major trading partners means decrease in level of demand for X and therefore BOGS deficit and similarly we M more (BOGS deficit once again)
Best of luck with your essay, I think CAD, ext stability and net foreign debt are going to do my head in