Economics class: UK’s yawning current account deficit raises financing risks
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Balance of payments, exchange rates
Click to read the article below and then answer the questions:
‘The current account deficit — which includes the i) UK trade balance and ii) the net income from foreign investment and iii) transfers — deteriorated to a record 8.3 per cent of gross domestic product.’ Briefly distinguish between points 1-3
‘With such a gap between the country’s consumption and its production, the pound can only maintain its value if foreigners want to lend to Britain or buy up assets such as land . .. ’ Using an exchange rate diagram, analyse this statement
‘A falling currency is often part of the solution to a gaping current account deficit.’ With reference to the Marshall-Lerner condition, analyse the impact of a falling currency on the current account balance
Gavin Clarke, Emmanuel College