Question

Select a country of your choice (other than Saudi Arabia) and observe the last balance of payments issued by that country. Does the country run a current account deficit or surplus? What are the driving factors for the deficit or surplus? What are the implications of the current account deficit or surplus for the overall economy? What actions may better the nation’s situation? Explain.

• Embed course material concepts, principles, and theories,

Answer 1

A nation can run a general BOP shortage or surplus by taking part in the authority reserve exchanges. For instance, a general BOP shortage can be upheld by drawing down the focal bank's reserve possessions. Similarly, a general BOP surplus can be consumed by adding to the focal bank's reserve possessions.

The size of current record shortage/surplus is influenced by a few variables including:

1. Swapping scale (exaggerated conversion standard would cause huge shortfall)

2. Level of buyer spending (monetary development) and thus import spending

3. Capital streams to back deficiency in long haul

4. Sparing rates – affecting degree of import spending

5. Relative swelling/intensity

A nation with a current record surplus will have a shortfall on the budgetary/capital record. for example a nation with a current record surplus will have surplus unfamiliar trade it can use to put resources into different nations.

There is no rigid guideline about what will occur if a nation has a current record overflow. It relies upon the size of the current record and the purposes behind the current record overflow.

In principle, you could anticipate a current record overflow (X-M) to support work since it is demonstrative of higher homegrown interest.

High fares (X) prompts expanded work in the fare segment.

Lower import spending may mean individuals are spending more on homegrown merchandise instead of purchasing unfamiliar products. More noteworthy interest for homegrown products helps homegrown work.

Arrangements to decrease a current record deficiency include:

1. Cheapening of swapping scale (make sends out less expensive – imports more costly)

2. Decrease homegrown utilization and spending on imports (for example tight financial arrangement/higher expenses)

3. Gracefully side approaches to improve the seriousness of homegrown industry and fares.