CIMA BA1 Syllabus A. Macroeconomic And Institutional Context Of Business - Causes and effects of an imbalance - Notes 2 / 5
Causes and effects of an imbalance
Reasons for deficits
There are many factors that can cause a country to suffer a current account deficit.
Meaning Import (M) > Export (X)
Cause | Explanation |
---|---|
High production costs | This may be due to out dated machinery or labour costs being too high |
Unable to compete | Domestic firms may be too small to compete with larger international rivals. |
High exchange rate | This makes exports more expensive and imports cheaper. |
High levels of aggregate demand | If aggregate demand is high then imports will rise (more foreign goods are purchased as well as local goods) but exports will not rise (and may even fall if local firms divert production from overseas markets to the local market) |
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Syllabus A. Macroeconomic And Institutional Context Of Business
A2. International Trade & Balance Of Payments
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Syllabus A. Macroeconomic And Institutional Context Of Business
A2. International Trade & Balance Of Payments