Describe only four (4) factors that create a current account deficit Essay

Describe only four (4) factors that create a present-day(prenominal) account shortfall. Leave a space between each factor - Essay Example shortage therefore implies that the value of the payment for the imports is greater than the receipt from the exports. The factors responsible for a current account deficit are- Decline in internal savings The domestic savings of a soil is the cart track of increasing investments as in economics savings is considered to be identical to investments. If there is a endless decline in the savings of a particular country then the scope of investment pass on causes an increase in the real interest regulate of the country. Increase in the domestic interest rate (real) in turn attracts more external investment in the country as the scope of arrest is expected to be high. With increasing foreign investment the demand of the home currency in the foreign exchange market also increases because of the need of currency conversion. This creates an upward pressure on the value of the domestic currency in comparison to the foreign currencies. Moreover, with the decrease in savings as a dowry of the total Gross Domestic Product of the country, consumption increases. Thus the demand for goods and services in the delivery increases and if the domestic producers fail to meet up the increasing domestic demand of the country the import of the country increases resulting in a deficit in the current account. (Arnold).