Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 10: Q. 7 (page 265)

Why does the trade balance and the current account balance track so closely together over time?

Short Answer

Expert verified

Trade balance is a part of current account balance.

Step by step solution

01

Step1. Introduction

Imports refer to the buying of goods/services from the foreign countries.

Exports refer to the selling of goods/services to the foreign countries.

International flow of money primarily refers to the flow of global investments.

02

Step2. Explanation

Trade difference is the difference of exports (X) and imports (M). It may be surplus(X>M) or deficit(M>X).

The current account balance takes into account this number and also accounts the international flows via investments as explained in the previous step.

Hence, since trade difference is accounted for in the current account balance, they are quite related and hence track so closely together over time.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What three factors will determine whether a nation has a higher or lower share of trade relative to its GDP?

If imports exceed exports, is it a trade deficit or a trade surplus? What about if exports exceed imports?

The GDP for the United States is \(18,036billion and its current account balance is -\)484billion. What percent of GDP is the current account balance?

Imagine that the U.S. economy finds itself in the

following situation: a government budget deficit of \(100 billion, total domestic savings of \)1,500 billion, and total domestic physical capital investment of \(1,600 billion. According to the national saving and investment identity, what will be the current account balance? What will be the current account balance if investment rises by

\)50 billion, while the budget deficit and national savings remain the same?

In recent decades, has the U.S. trade balance usually been in deficit, surplus, or balanced?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free