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Beginning of Paper
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Economics: Foreign Trade
a) Explain what is meant by a Current Account Deficit and why is it considered 'bad' to have an increasing CAD?
The Current Account Deficit generally means that our nation is spending more than it earns. This means that we have to borrow from other countries in order to pay for the things we purchase (imports). When we borrow from them we have to pay interest rates and these are additions to the original debt ....
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Middle of Paper
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.... rates drive us further into debt than we began with, leading to a greater debt.
Second is worsening of terms of trade. When import prices rise faster than export prices, the terms of trade will turn against us. We will sell what we make at a cheaper price than what we bought it for.
High consumer spending is another reason for the sustained current account in Australia. If the government spends more than it takes from people (taxes), a deficit budget occ ....
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