What is the relationship between the balance of trade and the current account balance?
What will be an ideal response?
The balance of trade measures the difference between the value of the goods a country exports and the value of the goods a country imports. If a country's exports of goods are greater than its imports of goods, there is a trade surplus, which increases the current account balance. However, the balance of trade is not the only component of the current account balance. The balance of services (exports of services minus imports of services), net income on investments, and net transfers are also included in the current account balance.
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Imagine that the economy is at a point on that is below both AA and DD, where both the output and asset markets are out of equilibrium. Which first action is TRUE?
A) The economy will stay at this level in the short run. B) The exchange rate will first rise to a point on the AA schedule. C) The exchange rate will first rise to a point on the DD schedule. D) The AA-DD equilibrium will shift to the position of the economy. E) The output level will first increase to a position on the DD schedule.
Refer to the cost table below. Diminishing marginal returns begins to set in with the production of which unit of output?
A. 2
B. 3
C. 4
D. 5