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'Ireland's current account in the Balance of Payments is in deficit' - Leaving Cert Economics - Question 7 - 2008
Question 7
'Ireland's current account in the Balance of Payments is in deficit'. Explain the meaning of this statement and state two reasons why this situation exists. Explana... show full transcript
Worked Solution & Example Answer:'Ireland's current account in the Balance of Payments is in deficit' - Leaving Cert Economics - Question 7 - 2008
Step 1
Explanation:
Answer
The statement 'Ireland's current account is in deficit' means that the value of total imports into Ireland exceeds the value of total exports. Essentially, Ireland is spending more on imported goods and services than it is earning from its exports. This can lead to a negative impact on the country’s economy and may require borrowing or the use of foreign reserves to balance the account.
Step 2
Reasons:
Answer
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Invisible imports exceed invisible exports: This occurs when Ireland imports services (such as travel, insurance, and investment services) that do not have a corresponding amount exported. The increased reliance on services, especially in a globalized economy, could lead to a larger value in invisible imports.
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Increase in the value of the euro: A stronger euro may have made Irish exports more expensive and less competitive in international markets, leading to a decline in demand for exports from Ireland while simultaneously increasing the cost of imports.