Turn on thread page Beta
    • Thread Starter
    Offline

    0
    ReputationRep:
    could someone please explain the link between current account deficits and investment income?
    from the data i have it seems as deficits deteriorate investment income rises
    i do not understand this ??
    Offline

    2
    ReputationRep:
    (Original post by MIZZ)
    could someone please explain the link between current account deficits and investment income?
    from the data i have it seems as deficits deteriorate investment income rises
    i do not understand this ??
    What a Deficit Implies
    When a current account is in deficit, it usually means that a country is investing more abroad than it is saving at home. Often, the logic dictating a country's investment decisions is that in order to make money, one has to spend money. In order to try and boost its gross domestic production (GDP) and future growth, a country may go into debt, taking on liabilities to other countries. It then becomes what is termed as a "net debtor" to the world. However, a problematic deficit can result if a government has not planned out a sound economic policy and used its debts for consumption purposes, not future growth.

    A current account deficit implies that a country's economy is functioning on borrowed means. In other words, other countries are essentially financing the economy, and hence sustaining the deficit. When determining the economic health of a nation, it is important to understand where the deficit stems from, how it's being financed, and what possible solutions exist for its alleviation. To do so, we need to look at not only the current account, but also the other two sections of the BOP, the capital account and the financial account
    Offline

    3
    ReputationRep:
    Mizz,

    This might help add to Wolf's reply too:

    http://www.tutor2u.net/economics/con...nt_account.htm

    Jim
    • Thread Starter
    Offline

    0
    ReputationRep:
    so basically
    in time of deficit
    the country realises it needs to increase its GDP to pay off these debts so starts to make investments abroad
    and thus the investment income increases?
    and this increase in investment income could mean the current account balances better
 
 
 
Poll
Do you think parents should charge rent?

The Student Room, Get Revising and Marked by Teachers are trading names of The Student Room Group Ltd.

Register Number: 04666380 (England and Wales), VAT No. 806 8067 22 Registered Office: International House, Queens Road, Brighton, BN1 3XE

Write a reply...
Reply
Hide
Reputation gems: You get these gems as you gain rep from other members for making good contributions and giving helpful advice.