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External Economy

Economics notes

External Economy

➡️ An imbalance in the current account of the balance of payments can lead to a decrease in the value of the domestic currency, making imports more expensive and exports cheaper. This can lead to a decrease in domestic consumption and investment, resulting in slower economic growth.

➡️ An imbalance in the current account can also lead to an increase in foreign debt, as the country must borrow from abroad to finance the deficit. This can lead to an increase in interest rates, making it more expensive for businesses and households to borrow money.

➡️ An imbalance in the current account can also lead to a decrease in foreign investment, as investors may be wary of investing in a country with an unstable balance of payments. This can lead to a decrease in economic growth, as the country will have less access to capital for investment.

What is an external economy and how does it impact a country's economy?

An external economy refers to the benefits that a country receives from the economic activities of other countries. This can include access to cheaper raw materials, new technologies, and larger markets for goods and services. External economies can have a positive impact on a country's economy by increasing productivity, lowering costs, and promoting innovation.

What are some examples of external economies in international trade?

External economies can be seen in a variety of industries and sectors. For example, the development of a new technology in one country can benefit other countries by lowering production costs and increasing efficiency. Similarly, the growth of a large market in one country can create opportunities for businesses in other countries to expand their sales and increase profits.

How can a country maximize the benefits of external economies?

To maximize the benefits of external economies, a country should focus on building strong relationships with other countries and promoting international trade. This can involve investing in infrastructure, such as ports and transportation systems, to facilitate the movement of goods and services. Additionally, countries can work to attract foreign investment and encourage the development of new industries and technologies that can benefit both domestic and international markets.

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