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Assess the Significance of an increase in the size of the deficit on the Current Account for the UK economy.
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Assess the Significance of an increase in the size of the deficit on the Current Account for the UK economy A Deficit can be defined as ` the negative balance when expenditure exceeds income`. Therefore a deficit on the current account occurs when we as a country are either importing too many goods from abroad, or are not exporting enough, usually it is a mixture of both. The underlying cause of trade deficit includes high-income elasticity of demand from UK consumers, which leads to a high level of demand for imported goods and services. Because the overseas demand for UK exports rarely keeps pace with the surging demand for imported products, so the trade deficit widens when the economy enjoys a period of consumption-led growth. The strong sterling exchange rate has helped to reduce the UK price of imports causing an expenditure-switching effect away from domestically produced output. In...
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