Current Account Defict relationship? Confused like a cat... (1 Viewer)

[NWO]

Can i say.
Causes of high CAD

A depreciation of the Australian dollar can contribute to high CAD. If the AUD depreciates, it would mean lower Terms of Trade = lower export prices = lower export earnings = worsening CAD..

This is right, right??? As long as u say why?

 

[leesh95]

Can i say.
Causes of high CAD

A depreciation of the Australian dollar can contribute to high CAD. If the AUD depreciates, it would mean lower Terms of Trade = lower export prices = lower export earnings = worsening CAD..

This is right, right??? As long as u say why?

There are some differences. In the short run a current account deficit will worsen with depreciation however in the long run it will improve since exports become more internationally competitive.

Its the opposite with appreciation.

 

[NWO]

so can i just stay with one? cbf changing my notes

 

[Renegader]

You're assuming volumes stay the same, so if you want to be really theoretical I guess it does work, but in reality a depreciation is more likely to contribute to an improvement in the CAD ( through lower imports and higher exports).

But if you want to stick with the depreciation worsening the CAD, you can also go to the NPY section of the current account and say that a depreciation would increase the dollar value of debt repayments denominated in foreign currency thus worsening the CAD etc