60-Twin_Deficits

Without a fiscal stimulus an economy may be stuck

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Unformatted text preview: xports are greater than outflows i.e. imports, the UK is running a current account surplus. If outflows exceed inflows the UK is running a deficit. Many students confuse a fiscal deficit with a current account deficit they are different. The former relates only to government finances whereas the current account reflects the international trade and investment income performance of an economy as a whole. In the case of a current account deficit, a nation needs to operate an off-setting surplus on the capital account of their balance of payments and this can be done in several ways including Attracting inflows of direct and portfolio investment from overseas Attracting short term banking flows into their economy (so called hot money) Attracting other flows including some remittances from migrant workers located overseas Short term borrowing / financial assistance from the World Bank and IMF A current account deficit can have many causes both demand and supply-side and whether or not a deficit matters depends in part on why it is happening. The UK economy for example has b...
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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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