NZ has a large Current Account deficit. Why is this a problem for NZ?

NZ has a large Current Account deficit. Why is this a problem for NZ? Identify: (Deficit) NZ traditionally spends more onimport payments than it earns on export receipts,creating a deficit on its Current Account.Explain: Any Current Account deficit must befunded by borrowing from overseas. This is reflectedas an inflow into the Financial Account. To attractforeign investors to lend to NZ, interest rates will needto rise. High interest rates have a negative effect onNZ’s economy as the cost of borrowing increases forconsumers and producers. This decreases consumption andinvestment, decreasing economic growth. Relate: So a Current Account deficit is a problem for NZ due to

it’snegative effect on Economic Growth.

I.E.R (aka D.E.R & S.E.X)Identify the problem, situation etc (state the

obvious)Explain how the problem is a problem, how it can

be fixed etcRelate your answer back to the specific question

given.OrStatement – State the question, situationExplain: The Answer to the QuestionExample: Use the example given to answer the

question. Or Define the situation, problem etcExplain your selfRelate back to the question