Current Account Deficit Essays - National Accounts,

Current Account Deficit In 1994 the UK had a Balance of Payments current account deficit. Explain the possible effects that this deficit might have upon the economy Discuss what, if anything the UK Government could have done to reduce or eliminate this current account deficit. The balance of payments is a record of one country's trade dealings with the rest of the world. Any transaction involving UK and foreign citizens is calculated in sterling (UK pounds). Dealings, which result in money entering the country, are credit (plus) items while transactions, which lead to money leaving the country, are debit (minus) items. The balance of payments can be split up into two sections: 1. the current account which deal with international trade in goods and services; 2. transactions in assets and liabilities which deals with overseas flows of money from international investments and loans; The current account consists of international dealings in goods (visible trade) and services (invisible trade). Invisible trade includes payments for overseas embassies and military bases: interest, profit and dividends from overseas investment; earnings from tourism and transportation. The cause of a deficit was that the UK imported more visible goods than it exported and there was a net deficit on transfers, our service earnings plus overseas incomes did not exceed our service payments plus investment income paid abroad sufficiently to prevent the balance on current account being well in deficit. The state of the trade balance is extremely important since changes in imports and exports have a important bearing on the real economy and in particular on output and employment. In the longer run, a persistent deficit, if it cannot be offset by a surplus on invisibles, will have serious implications. It will handicap the conduct of the macroeconomic policy. Its effect will be to increase instability of exchange rates and/or interest rates as the UK becomes dependent on inflows of hot money to finance the deficit. Higher interest rates are also likely to cause a reduction in real investment and therefore in economic growth. The current account deficit might also be financed by increased sales of assets to overseas firms and residents, which in the long run, will lead to an increased outflow of interest, profits and dividends. The balance of payments always balances because of official financing. However, a balance of payments deficit means a persistent and large negative balance for official financing. This can be the result of excessive purchases of foreign goods and services or excessive UK investment overseas. In the short term, a balance of payments deficit can be corrected by: continued borrowing of foreign currency; increasing interest rates to attract overseas investors; imposing exchange controls; Imposing tariffs and import quotas. In the long run, the government can correct a balance of payments deficit by reducing demand in the economy for all goods including imports. Reducing UK inflation rates or encouraging a sterling depreciation will also help. The correct measures to remedy a deficit will depend upon its cause and also upon the exchange rate regime. A short-term deficit might be dealt with by running down reserves or by borrowing. Another short-term measure might be to raise interest rates to encourage the inflow money. When there is a more fundamental payments deficit, other methods will have to be taken. The following show ways in which the government can tackle the problem of a deficit in the Current Accounts. Deflation is where the demand for imports are restrained by restricting the total level of demand in the country through fiscal and monetary polices Protection is where the country cuts all trade with the outside world by cutting off all imports and therefore protecting the home market from foreign competition Devaluation is where a fixed exchange rate drops the external price of its currency, as the UK did in 1967 when the rate changed from ?1=$2.80 to ?1=?2.40, this is referred to as a devaluation which means exports will now appear cheaper to foreigners while imports will seem more expensive to domestic customers.

Colonization of Egypt essays

Colonization of Egypt essays What is a good country? Is a good country a country with a cheerful population? Is a good country a country which controls more land than the next? Is a good country a country whose government and economic system has absolutely no problems? Or is a good country a country that has a delicate balance of benefits and problems. Well, we are here today to discuss the corruption of Egypt, a good country, by Britain, a huge and powerful country. Although Britain was not the first, Britain has retained control of Egypt for nearly 40 years and I am here today to ask for the freedom and decolonization of Egypt from Britain. This problem all started in 1882 when the British forced Napoleon Bonaparte, the leader of the French Army, out of Africa. Instead of leaving the land of Egypt to its rightful owners, the Egyptians, Britain decided to colonize Egypt and control them through a protectorate. The protectorate allowed the British government to control Egypts economic and political decisions without intervention from the Egyptians. In other words, The Egyptians had completely lost control of their own country. Well, some of you might ask, Why would Britain want to keep Egypt? The response to this is more simple than you might think. Was it the fact that Egypt was such a weak country at the time? Or was it that Egypt was just waiting to be colonized? No, it was greed, pure British greed, that caused the corruption of Egypts balanced culture. The economic situation of Egypt before its colonization was quite good. The working and owning class maintained the industrial aspect while the upper class maintained the government and political prospect. Through the colonization of Egypt, Britain gained control of the Suez Canal, a major part of the world trade routes. With this advantage, Britain decided to heavily tax the ships which passed through. This brought mass amounts of money of which the Egyptians never saw. Instead of ...