Current Account

• Primary income is income from assets held abroad so money flows into our economy.
• Secondary income is when money is transported with no goods and services exchanged. An example of this is remittance.
• Structural causes of a BoP deficit is low productivity, low innovation, low investment.
• Cyclical causes of a BoP deficit are: a boom in domestic demand, a recession in key export markets and an increased demand for imported technology.
• Consequences of a Current Account deficit is that AD gets diminished and the income of foreign business increases. This also increases consumption.
• 2 policies to help the BoP deficit are called: expenditure reductions and structural change.
• Expenditure reductions to help the BoP deficit are tariffs on foreign goods which is called protectionism. The bank would implement a contractionary monetary policy which increases interest rates and causes less disposable income.
• Structural changes to help the BoP deficit are supply side policies to help factors of production and investment in new growth sectors.