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Current Account and Trade Balance
hard

Arrange the following steps in the correct order to explain how an increase in U.S. real income affects the current account balance with the European Union.

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Learning Path

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Choose the Best Answer

A

Increased U.S. real income leads to higher consumer spending.

B

Higher consumer spending results in increased imports from the European Union.

C

Increased imports lead to a current account deficit.

D

The current account deficit influences the demand for foreign currency.

Understanding the Answer

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Answer

When U. S. real income increases, people generally have more money to spend. This often leads to a rise in demand for goods and services, including imports from other countries like those in the European Union. As Americans buy more European products, the U.

Detailed Explanation

When people in the U.S. Other options are incorrect because This step is true but not the first one; This is a result of increased imports, not the first step.

Key Concepts

Current Account Balance
Trade Balance
Foreign Currency Demand
Topic

Current Account and Trade Balance

Difficulty

hard level question

Cognitive Level

understand

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