The Current Account & AD/AS Model
-
Upload
aquinas-college-economics-department -
Category
Education
-
view
2.064 -
download
11
description
Transcript of The Current Account & AD/AS Model
The Current Account & AD/AS
Current Account & AD/AS
• Exports (X) and Imports (M) are components of Aggregate Demand
• So if a current account deficit exists then it will impact on Aggregate Demand
• Current Account Surpluses and Deficits will have an effect
Surplus on the Current Account
• This means we are exporting more than we are importing
Deficit on the Current Account
• This means we are importing more than we are exporting
AD1
Current Account Equilibrium
• This is where the current account has no effect on the demand in the economy
Does a Current Account Deficit Matter?
Yes No
UK is less competitive now, due to lack of investment and low productivity
A deficit is no problem provided that there is enough foreign capital flowing into a country to finance it
A deficit indicates withdrawals from the circular flow which means that if this keeps happening jobs will be lost
A deficit is self clearing
Unemployment will rise due a fall in domestic demand
The deficit may have been caused by expenditure on Capital Goods which would benefit the export industry