Causes Of Imbalances In The Current Account Of The Balance Of Payments
Economics notes
Causes Of Imbalances In The Current Account Of The Balance Of Payments
➡️ CAB is a measure of a country's net trade in goods and services, plus net earnings from investments and transfers.
➡️ A positive CAB indicates a trade surplus, while a negative CAB indicates a trade deficit.
➡️ A country's CAB can be affected by changes in its exchange rate, the level of its imports and exports, and the terms of trade.
What are the main causes of imbalances in the current account of the balance of payments?
Imbalances in the current account of the balance of payments can be caused by a variety of factors, including changes in exchange rates, differences in savings and investment rates, and changes in the terms of trade. Other factors that can contribute to imbalances include government policies, such as tariffs and subsidies, and changes in the global economy.
How does a current account deficit affect the economy?
A current account deficit can have a negative impact on an economy, as it indicates that the country is spending more money than it is earning. This can lead to an increase in the country�s debt, as well as a decrease in its foreign exchange reserves. In addition, a current account deficit can lead to a decrease in the value of the country�s currency, which can make it more difficult for the country to purchase goods and services from abroad.
What measures can be taken to reduce imbalances in the current account of the balance of payments?
Governments can take a variety of measures to reduce imbalances in the current account of the balance of payments. These measures can include increasing exports, reducing imports, and encouraging domestic savings. Governments can also implement policies to reduce the cost of production, such as reducing taxes and subsidies, and increasing competition in the domestic market. Additionally, governments can encourage foreign direct investment, which can help to increase the country�s foreign exchange reserves.