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Word Count: 624
Since mid 1980s Australia has been experiencing persistently large current account deficits The current account deficit CAD represents the excess of debits in the current account in comparison to the credits that is the excess of money going out to imports and income payments to abroad in comparison to the money coming in from exports and income payments from abroad Each year Australia has been paying out considerably more for goods services and other incometransfer payments that what has been received These trends are associated with the short and long term domestic and external influences that impact on the balance of goods and services and the net income balance in Australia including the structure of Australias export base international competitiveness structural change terms of trade foreign liabilities and servicing costs and the levels of national savings Australias high CAD has had several effects on the economy including the growth of foreign liabilities increased servicing costs increase volatility in the exchange rate constraints on future economic growth more contractionary policies and the loss of international investor confidence Paragraph one Firstly there have been many changes in Australias CAD over the past two decades Australia has had a relatively high CAD overall sustaining an average of 4 of the GDP in the past two decades which has given Australia one of the highest CAD outcomes amongst advanced economies Since the mid 1980s the current account has been a deficit ranging from 3-6 of GDP over the past decade resulting from a dramatic increase in Australias foreign liabilities and higher servicing costs in the 1980s However during the 1990s there was no further deterioration of the CAD averaging 44 of GDP The CAD increased to 63 in 1994-94 but reached its lowest level in two decades in 2000-01 at 27 of the GDP as a result of the recession Cyclical factors caused the CAD to double in 2002-03 taking the CAD to 53 of GDP due
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