Note: a budget deficit does not automatically make the economy boom, just as a surplus budget does not autmoatically slow down economic growth. This is due to the fact that all the other factors that contribute to ec. growth may change due to certain circumstances.:: dreami :: said:i had a rethink...
twin deficit just refers to the deficit of fiscal outcome and cad and the relationship or more so, impact fiscal has on cad?
either way...
can i ask how does the government raise interest rates?? unless you mean borrow from the public through the RBA who sells commonwealth government securities with higher yields to encourage borrowers? I just want to clarify.ToO LaZy ^* said:when the government runs a budget deficit, they will need to borrow money to finance the deficit. when this happens, the government pushes interest rates higher to encourage the private sector to lend their money to the government. this causes the private sector to be 'crowded out', forcing them to borrow overseas due to lower interest rates. this will increase our net debt and net incomes component on the current account, resulting in worsened CAD. therefore the government has effectively caused not only the budget deficit, but the CAD, hence the 'twin deficit'
hope that clears things up..
i think he or she means..the gov will influence the RBA.. to raise interest ratesunderthebridge said:can i ask how does the government raise interest rates?? unless you mean borrow from the public through the RBA who sells commonwealth government securities with higher yields to encourage borrowers? I just want to clarify.