The Balance of Bayments and CAD

4. Analyze the relationship between Australia's persistent CAD and high level of net foreign liabilities. In your answer discuss the main components of Australia's CAD and the factors affecting the size of the current account deficit over time (20 Marks) The current account shows all the transactions involved from money being received (income) and money being spent (expenditure) for exports and imports of goods, services, incomes and transfers. Over the last decade, Australia has had a persistent …

…eventually increase the CAD * Using Microeconomic policy to bolster exports * The most obvious response would be for the government to keep increasing public sector and national saving by running big budget surpluses The Government may need to implement policies to reduce the CAD because the financial markets may lose confidence in the future of thee economy. It may also expose the country to external shocks, and Australia may be more susceptible to exchange rate fluctuations.