How does an increase in U.S. real income typically affect the trade balance with the European Union?

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It leads to higher imports, potentially increasing the current account deficit.

It reduces imports, improving the current account balance.

It has no impact on trade balance with the European Union.

It increases exports, causing a current account surplus.

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Answer

When U. S. real income increases, people in the U. S. generally have more money to spend.

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When people in the U.S. Other options are incorrect because Some might think that higher income means buying less from other countries; It's a common belief that income changes don't affect trade.

Key Concepts

Current Account Deficit

Trade Balance

Real Income

Topic

Current Account and Trade Balance

Difficulty

easy level question

Cognitive Level

understand

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