concequences of high CAD (1 Viewer)

[nanashi]

it doesnt really specify in the syllabus, but should we be prepared for a question that asks us to talk about the consequences of a high CAD?

 

[Jago]

yes .

 

[HayleeKate]

The syllabus says you must know the causes and EFFECTS of external [in]stability (measured by changes in CAD) so it is in the syllabus, hence you must know it.

 

[Haku]

just to continue on, what exactly are the consequences of a continuous CAD?

 

[_muse_]

just to continue on, what exactly are the consequences of a continuous CAD?

have you read the textbook? it has its own section.. like 2 pages or something in balance of payments section.. well it is in my old 2004 textbook anyway.. damn poor school

 

[HayleeKate]

Continuous CAD means we're always requiring foreign investment inflows to the Capital and Financial Accounts, which in turn means high servicing requirements and all the associated debt/liabilities issues. It makes us more vulnerable to conditions in the global market, and maintaining the perception of external stability is important because we cannot afford investors to lose confidence in our economy. There's the debt trap scenario (cycle of debt, whatever) where high CAD leads to high foreign debt which leads to high CAD etc etc. Also having high CAD and debt could lead to low credit ratings hence making life difficult to borrow funds.
But, yes there should be plenty of extrapolation in your textbook.