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Explain why a government may aim for balance on the current account.

Quick Answer:

• Might have to borrow money to finance deficit (if in deficit) as deficit means outflow of currency reserves.
• Might lead to downward pressure on exchange rate (if in deficit) due to outflow of pounds to buy imports.
• May indicate weakness of export performance (if in deficit) which could be harmful for output and/or employment in certain industries.
• Might indicate economic growth is too high (if in deficit) and could lead to inflation.
• Might indicate economic growth is too low (if in surplus) and could lead to higher unemployment.
• Might lead to rising exchange rate (if in surplus) which may lead to unemployment in export industries

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