Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
An increase in net income leads to a surplus in the current account
B
Net income has no effect on the current account balance
C
A decrease in net income results in a deficit in the current account
D
Both A and C are correct
Understanding the Answer
Let's break down why this is correct
Answer
Net income, which is the money a country earns after expenses, has a significant impact on the current account balance. When a country has a high net income, it usually means that people and businesses can spend more on imports, which can lead to a larger current account deficit if imports exceed exports. Conversely, if a country has low net income, it might spend less on imports, potentially improving its current account balance. For example, if a country earns a lot from selling its goods abroad, it might buy more foreign products, affecting the balance of trade part of the current account. Thus, net income can either help or hurt the current account depending on how much a country spends or earns from trade.
Detailed Explanation
When net income goes down, people and businesses spend less. Other options are incorrect because Some might think that more income always means more money in the current account; It's a common mistake to think net income doesn't matter.
Key Concepts
net income
Topic
Current Account Balance Dynamics
Difficulty
easy level question
Cognitive Level
understand
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