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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, therefor they increase the total debt owed.
It is considered a bad thing to have an increasing current account deficit because we are borrowing from other countries and then repaying them even more, due to interest rates ....
Word count: 861 - Page count: 4
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