Policies To Correct Imbalances In The Current Account Of The Balance Of Payments
Economics notes
Policies To Correct Imbalances In The Current Account Of The Balance Of Payments
➡️ Aggregate Demand: Aggregate demand is the total amount of goods and services demanded in the economy at a given overall price level and in a given period of time. It is the sum of consumption, investment, government spending, and net exports. Changes in aggregate demand can cause changes in the level of real output, the price level, and employment.
➡️ Aggregate Supply: Aggregate supply is the total amount of goods and services that firms are willing to produce and sell in the economy at a given overall price level and in a given period of time. It is the sum of all the individual firms➡️ supply curves. Changes in aggregate supply can cause changes in the level of real output, the price level, and employment.
➡️ Equilibrium: Equilibrium occurs when aggregate demand equals aggregate supply. At this point, the level of real output, the price level, and employment are all in balance. Changes in aggregate demand or aggregate supply can cause the economy to move away from equilibrium, resulting in changes in the level of real output, the price level, and employment.
What are the main causes of imbalances in the current account of the balance of payments?
The main causes of imbalances in the current account of the balance of payments are a trade deficit, a deficit in the income account, and a deficit in the capital account. A trade deficit occurs when a country imports more goods and services than it exports, resulting in a net outflow of funds. A deficit in the income account occurs when a country pays out more in interest, dividends, and other payments than it receives. A deficit in the capital account occurs when a country invests more abroad than it receives in foreign investments.
What policies can be used to correct imbalances in the current account of the balance of payments?
Policies that can be used to correct imbalances in the current account of the balance of payments include increasing exports, reducing imports, increasing foreign investment, and increasing 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.
What are the potential risks associated with correcting imbalances in the current account of the balance of payments?
The potential risks associated with correcting imbalances in the current account of the balance of payments include a decrease in economic growth, an increase in unemployment, and a decrease in the value of the currency. Additionally, policies to reduce imports may lead to a decrease in the availability of certain goods and services, and policies to increase exports may lead to a decrease in domestic consumption.