Question

explain what may cause a current account deficit

Answer 1

Answer:

A current account deficit occurs when the value of imports (of goods, services and investment income) is greater than the value of exports. If the currency is overvalued, imports will be cheaper, and therefore there will be a higher quantity of imports

Answer 2

Answer:

Factors affecting Current Account Deficit

Exchange rate (overvalued exchange rate would cause large deficit)

Level of consumer spending (economic growth) and hence import spending.

Capital flows to finance deficit in long-term.

Saving rates – influencing level of import spending.

Relative inflation/competitiveness