ATAR Notes: Forum

VCE Stuff => VCE Business Studies => VCE Subjects + Help => VCE Economics => Topic started by: Kilik on June 09, 2014, 12:35:08 am

Title: Lower CAD impact on living standards
Post by: Kilik on June 09, 2014, 12:35:08 am

How does lower current account deficit (CAD) impacts on living standards.

Title: Re: Lower CAD impact on living standards
Post by: Jono_CP on June 09, 2014, 01:03:51 am

A lower CAD benefits material living standards greatly. It is an indication that Australia is paying off its net foreign debt, and living "within its means." Generally, this is indicated by a percentage of around 3.5%.

Lower deficit levels in the current account, raises net primary incomes and means that the government can spend on infrastructure projects and ways to improve the efficiency of the labour force.

However, sometimes having a lower current account deficit can be misleading. E.g. it is not good to have a CAD deficit of 1%, as this indicates that the government is not borrowing enough money to finance the activities for small business' for instance.

Conversely, a sharp appreciation of the CAD would highlight that Australia is not living "within its means" and will eventually have to offload some of these payments onto future generations, whose material and non-material living standards may plunder as a result.