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Current Account and Trade Balance
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Which of the following statements correctly describe the relationship between U.S. real income and the current account balance? Select all that apply.

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Choose the Best Answer

A

An increase in U.S. real income typically leads to higher imports.

B

Higher imports from the EU can contribute to a current account deficit.

C

Increased disposable income has no effect on trade balance.

D

A current account surplus indicates that a country is spending more on imports than it earns from exports.

E

Rising real income can enhance consumer demand for foreign goods.

Understanding the Answer

Let's break down why this is correct

Answer

The relationship between U. S. real income and the current account balance is important to understand how the economy interacts with the rest of the world. When U. S.

Detailed Explanation

All the statements provided misunderstand how real income affects trade and the current account. Other options are incorrect because This suggests that higher income does not lead to more imports, but it actually does; This implies that imports alone cause a deficit, but it's about the balance of exports and imports.

Key Concepts

Current Account Balance
Trade Balance
Disposable Income
Topic

Current Account and Trade Balance

Difficulty

medium level question

Cognitive Level

understand

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