Countries that run a persistent current account deficit will eventually be forced to
adjust via a currency crisis leading to currency devaluation and defaulting on debt
payments. But there is no mechanism to discipline countries that run a persistent
current account surplus. A surplus in one country represents a deficit in another.
China runs a current account surplus of 2 percent of its GDP. Meanwhile the UK’s
current account deficit was at 4 percent of its GDP in 2022.
Examine whether a current account deficit is always a problem. Should
countries be concerned? Examine what macroeconomic policy, if any, is
needed to correct a current account deficit. Use any relevant economic theory
and diagrams to support your arguments.
Your conclusion should clearly answer the question: When should a country be
concerned with a current account deficit? What can a country do to correct
the deficit in the 21st century? and provide rationale for the answer.
In your answer you are required to refer to your Anderton textbook and the
following articles: China’s demand dilemma could spell trouble for the world.
https://www.ft.com/content/c24459ae-b6c6-4083-b713-726ec4432c2a
Turkey gains current account surplus after surge in tourism.
https://www.ft.com/content/45c0d041-8bd1-4899-9514-5da8ed4ae263
Valdimir Putin plans meeting on Russian currency controls after rouble’s
slide. https://www.ft.com/content/52e2cfc3-1157-424d-bf08-1b9544c99803
UK’s yawning current account deficit raises financing risks.
https://www.ft.com/content/b784e8ae-b962-43dd-a0f3-4cd163ff3314
Current account deficits –
https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/
Current-Account-Deficits
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