European Business Essay Example | Topics and Well Written Essays - 2500 words

European problem - Essay ExampleFactors that can be held responsible for the current account deficit are say belowDeficit in goods Due to de-industrialisation, the UK has had a very large deficit of goods. Besides macrocosm a manufacturer of goods, the UK has increasingly become an importer of manufactured commodities such as, clothes, computers and cars. The UK is also an importer of food and oil. The surplus in service partly offsets the deficit in goods, but is not sufficient in order to outdo the trade deficit.Relatively low rate of manner of speaking Individuals residing the UK has a relatively low rate of saving as compared to that of other countries. Then again, despite a rise in the saving rate, deterioration in the current account could not be prevented.High consumer spending A rapid growth in consumer spending leads to an increase in imports, which in turn adversely affects the current account. During a boom in the economy, the saving rate appears to fall, unlike co nsumer spending, which increases and leads to a current account deficit (Economics.Help, 2014).It is the value of one expanses currency in terms of another, indicating the rate at which a currency can be exchanged for another. The balance of payments model states that the foreign exchange rates are at an equilibrium level if the current account balance is stable. Reduction in foreign exchange reserves occurs due to a trade deficit, which ultimately depreciates the currency. In case of undervaluation of a currency, the countrys exports are rendered affordable and imports expensive.yearling reflects the amount of exports needed to be sold in order to purchase imports. There is an improvement in the terms of trade if the price of exports increases and vice-versa. A prolonged decline in the terms of trade reduces the modular of living. On the other hand, an improvement in the terms of