The former relates only to government finances whereas

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Unformatted text preview: een running a current account deficit for many years in a row. Much of the deficit has been the result of a growing trade deficit in goods (approaching 100bn a year) only partially offset by surpluses in trade in services and a net inflow of investment income. When considering the causes of a current account deficit it is important to distinguish between: (i) (ii) (iii) Cyclical causes the downturn in world trade in 2009 causing a fall in the value of exports Structural causes e.g. the effects of globalisation and the supply-side performance of the UK's manufacturing export businesses including relatively low productivity and research External shocks e.g. volatility in commodity prices such as for food and oil/gas the UK is a net importer of both and the balance of payments suffers when global prices are rising. Does a current account deficit matter? The main arguments for being relaxed about a current account deficit are as follows: (i) Partial auto-correction: If some of the deficit is due to strong consumer demand, the deficit will partially correct when t...
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

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