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Current Account Deficit (CAD):
Boon or Bane The general belief is that high CADs are dangerous. In general, this is correct. But the converse that low CADs are good is not. As seen above, a CAD is nothing but a measure of a country's savings gap, i.e., the excess of investment over savings. It represents the net transfer of resources from the rest of the world to the country running the deficit. Therefore, in a developing country, with a huge needs for funds for investment, a CAD makes sense. It allows it to finance investments that would have been well beyond what it could hope to finance with its own savings. On the flip side, CADs are to be financed by foreign capital inflows. The capital flows are fickle, can be reversed, and have to be serviced. The right CAD for any country, therefore, depends on its ability to absorb and service capital inflows. If these resources can be deployed productively and in ways that enhance its ability to repay, a high CAD to GDP ratio is nothing to worry about. But if they cannot, then it is inviting trouble. Too high a ratio canprove unsustainable in the long run as it did in East Asian economies in 1998and in Mexico earlier.
To that extent low ratio has its advantages. But, very low ratio carries with it an opportunity cost?of not being able tobenefit from resources that could be drawn from outside.
Functions of Money Money performs several important functions. It serves as a medium of exchange, a unit of account, a store of value and a standard of deferred payments. In a
Why some country saving less and consumption more?
Iso-quant: The dots in the above Figure denotes the various combinations of (L, K) that the producer can pick up from form to produce. Among these combinations, there can be t
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merits and demerits of international trade
(a) What are the problems associated with R 2 and how can adjusted R 2 solve them? (b) If the regressors in an equation are highly correlated, which measures can be used to
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