Current Account measured as a precentage of GDP? (1 Viewer)

[Shapes]

hihi~

could someone help me please...

Why is the Current Account measured as a percentage of GDP ?

~ LOL such basic stuff and i don't even know the answer to it.

Cheers!

 

[willbman]

the cad is only significant proportionally. a country could have a cad of $1 billion and GDP of $100 billion, or a cad of $1 billion and GDP of $5 billion, which would make foreign liabilites alot harder to pay off.

 

[Shapes]

Sorry ~ but I'm still not sure why they measure it as a percentage of GDP, how does it make it any different than just mentioning a numerical value O_O??

btw thanx for you help ^^

 

[gnrlies]

Sorry ~ but I'm still not sure why they measure it as a percentage of GDP, how does it make it any different than just mentioning a numerical value O_O??

btw thanx for you help ^^

It needs to be as a percentage of GDP, as we need to "weight" the figure. Its useless giving a nominal amount as it cannot really be compared to anything.

For example if I say that our CAD is $60bn how would I know if this is good or bad?

Well if we were a large country like the USA it would be a favourable figure as it would be a very small portion of our GDP. Howevor for a country such as Australia, $60bn is around 6% of GDP - obviously a less favourable amount.

Just as we might calculate real GDP by weighting it to inflation, we need to weight CAD by putting it into perspective of the size of the economy.

a CAD can just as acceptably be listen in a nominal figure and that would be perfectly acceptable, howevor when you wish to compare it, it would be invalid to compare australias $60BN cad with americas $1 trillion cad without giving some kind of comparison to the relative size of the economies.

Plus it also allows for comparison with recomended targets (such as the IMF's generic 6% upperlimit) and historical figures (i.e. compare 2006 cad with 1986 cad)

 

[Shapes]

Ohhhhhh *sigh* that makes so much more sense now =D i found the answer to the book but it mentioned nothing about the fact that measuring CAD against the GDP allows us to make comparisons with other figures *or i might have skipped it in the book* LOL

~ so stressed atm ~ my eco trials are tomorrow =P