Risks of a sustained high Current Account Deficit (notes)

Risks of sustained last pawl include: - Growth of overseas liabilities - A CAD results in financial inflow, either in the form of borrowing from overseas ( alien debt) or with sell paleness in items such as property/companies ( hostile equity). This leave mingy that add upers whitethorn become more reluctant to impart to Aus or to invest in Aus, and decisions affecting the Aus economy go forth increasingly be made by international businesses and not be Australians - maturationd servicing costs associated with eminent take aims of foreign liabilities impose substantial servicing costs, reflected by the large popsicle income deficit on the CAD. Foreign debt must be serviced by means of interest payments that vary according to the level of interest clothe in Aus & amp; overseas, and profits must be returned on foreign equity investment can contribute to the worry of the debt trap, in which Aus is borrowing money simply to service its subsisting foreign liabilit ies (borrowing to pay off debt, only creating further debt - debt trap) - Increase excitability for exchange rates - high CAD may countercheck the confidence of overseas investors in the Aus economy & by reducing demand for Aus currency, a depreciation of $A may occur. A depreciation of the $A will mostly refuse Auss CAD line in the short term, as price of imports & costs of servicing foreign debt affixs - unobtrusiveness on future sparing growth - in long term, CAD acts as speed limit on economical growth. high levels of economic growth generally involve an increase in imports & deterioration of CAD. Economies with a CAD problem ar therefore forced to limit growth to the level at which the CAD is sustainable - balance of payments constraint - More contractionary economic policy - in order to reduce a high CAD in the short term, govts are likely... If you want to watch a full essay, order it on our website: BestEssayChea! p.com

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