The significance of deficits and surpluses for an individual economy
A current account deficit or surplus affects a country's economy in real ways. Deficits can weaken the currency and build up debt, while surpluses can signal strong exports but may also cause problems.
Real World
The UK has run a persistent current account deficit for decades — in 2022 it reached around 8% of GDP — requiring continuous capital inflows from abroad to finance it, making the economy vulnerable to sudden shifts in investor confidence.
Exam Focus
Distinguish between a deficit that is 'benign' (investment-driven) and one that is 'concerning' (consumption-driven) — this evaluative distinction gains high marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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