The Current Account & AD/AS Model

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Looking at the impact of the Current Account on AD/AS

Text of The Current Account & AD/AS Model

  • 1. The Current Account &AD/AS

2. Current Account & AD/AS Exports (X) and Imports (M) arecomponents of Aggregate Demand So if a current account deficit exists thenit will impact on Aggregate Demand Current Account Surpluses and Deficitswill have an effect 3. Surplus on the Current Account This means we are exporting more thanwe are importing 4. Deficit on the Current Account This means we are importing more thanwe are exporting AD1 5. Current Account Equilibrium This is where the current account has noeffect on the demand in the economy 6. Does a Current Account DeficitMatter?YesNoUK is less competitive now, due to A deficit is no problem providedlack of investment and low that there is enough foreign capitalproductivity flowing into a country to finance itA deficit indicates withdrawalsA deficit is self clearingfrom the circular flow which meansthat if this keeps happening jobswill be lostUnemployment will rise due a fallThe deficit may have been causedin domestic demand by expenditure on Capital Goods which would benefit the export industry