Business Economics Essay Example | Topics and Well Written Essays - 3750 words

Business Economics - Essay ExampleThere is an inverse relationship in the midst of a countrys current paper and its external debt, all things remaining equal. This can be observed from the current account and contrary debt statistics of Australia, in the current year. In the year 2009 at that place is a deficit in Australias current account. This is because of a continued rise in its net contradictory debt which results in a negative impact on a countrys current account. As shown in the figure below the total current account deficit for the year 2009 amounts to $6346 million.Revenue gains receive by a country help in increasing the balance in its current account while excessive expenditure leads to a deficit. Thus, if a country imports more goods and services than the goods and services it exports, it leads to a deficit in its current account and vice versa (Daly, 2004).The above figure shows an increase in Australias net extraneous debt, over the years from $506,355 million in 2006- 07 to $616,650 million in 2008 09 (Australian Bureau of Statistics, 2009), thusly indicating that its exports far exceeds its imports, and the savings are relatively lower as well. Thus, it can be said that there is an inverse relationship between current account deficit and foreign debt of a country, as the foreign debt increases, with savings remaining constant, there is a deficit in the current account while, a decrease in foreign debt, increase in exports, increase in savings, etc would lead to a surplus in the countrys current account. Another significant relationship between CAD (current account deficit) and foreign debt of a country is the fact that as the country experiences a CAD it leads to an increase in foreign borrowings, which is required to pay off the deficit, which ultimately leads to a further increase in foreign debt. As the foreign debt rises, the interest on it rises simultaneously,