Economics: Foreign Trade

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of the exchange rate, freight and tourism and international competitiveness.

The first reason is the fact that interest rates on existing debt are high as well as the fact that we don't save enough, adds a considerable cost onto the final debt. Higher interest rates drive us further into debt than we began with, leading to a greater debt.

Second is worsening of terms of trade. When import prices rise faster than export prices, the terms of trade will turn against us. We will sell what we make at a cheaper price than what we bought it for.

High consumer spending is another reason for the sustained current account in Australia. If the government spends more than it takes from people (taxes), a deficit budget occurs. This increases consumer spending even though we can't afford it.

Inflation also contributes to the current account deficit as it influences international competitiveness. If workers wages don't match the level of productivity, then businesses don't match overseas ...

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