... of UK exports to decline, it will take some time for countries to react to these changes. In the short run the volume of exports will remain the same before it increases as a result of devaluation in the long run. This is illustrated by the J-Curve effect below. (b) Examine the possible causes of such a deficit. There are a number of possible causes for a current account deficit. Because at a time when some countries will be running a current account deficit, in this case the UK for instance, other countries will be experiencing a current account surplus. Therefore it is essential to identify the underlying causes of a current account deficit before designing policies to correct the problem. High levels of economic growth could be a reason for the deficit. In a boom, when consumption and investment expenditure tend to rise, it is inevitable that some of ...

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