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

Some economists warn that the persistent trade

deficits and a negative current account balance that the United States has run will be a problem in the long run. Do you agree or not? Explain your answer.

Does a trade surplus mean an overall inflow of financial capital to an economy, or an overall outflow of financial capital? What about a trade deficit?

What is the difference between trade deficits and balance of trade?

Does a trade surplus help to guarantee strong economic growth?

Table 10.7 provides some hypothetical data on

macroeconomic accounts for three countries represented

by A, B, and C and measured in billions of currency

units. In Table 10.7, private household saving is SH,

tax revenue is T, government spending is G, and

investment spending is I.


ABC
SH700500600
T00500500
G600350650
I800400450

Table 10.7 Macroeconomic Accounts

a. Calculate the trade balance and the net inflow of

foreign saving for each country.

b. State whether each one has a trade surplus or

deficit (or balanced trade).

c. State whether each is a net lender or borrower

internationally and explain.
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