Explain the relationship between current Account and the goods market.

Expert Solution

Current account basically measures the trade balance, which is the difference between exports and imports. Therefore current account balance measures net exports and net exports is an important component of aggregate demand in the goods market

The goods market equilibrium is influenced by net exports in the sense that any increase in the net exports is going to increase the aggregate demand. This will shift the aggregate demand curve to the right and both the real GDP and the price level will increase in the short run.

Also note that changes in the goods market equilibrium also influence current account. For example an increase in the price level as resultant from a new goods market equilibrium, is going to make domestic goods expensive for foreigners. This decreases the demand for domestic currency and depreciates it. As a result it exports are increased and imports are reduced so that net exports is increased.

Rahul Sunny answered 2 years ago

Please explain the general relationship between the current account and the capital account for the following...

Please explain the general relationship between the current account and the capital account for the following three countries, AND if the relationships are different, please explain why? [Word limit: 500 words] a) China b) Japan c) United States

R13.7: Explain the relationship between the repairs and maintenance expense account and the PPE asset account....

R13.7: Explain the relationship between the repairs and maintenance expense account and the PPE asset account. Why is the auditor interested in examining debits to both accounts when auditing PPE? Explain your answer with reference to the assertions at risk. R13.9: Explain why completeness is a more critical assertion for long-term debt than for cash, inventory, or PPE. What procedures are primarily designed to address the completeness assertion for long-term debt?

Explain, in words and functional forms, the relationship between the consumption of goods and services, health,...

Explain, in words and functional forms, the relationship between the consumption of goods and services, health, and utility and the relationship between health care services and health. Explain how the latter relationship is dependent on the disease in question.

Explain the relationship between economic cycle and market cycle? Why is the market cycle a good...

Explain the relationship between economic cycle and market cycle? Why is the market cycle a good predictor of future economic conditions?

Explain the relationship between public finance and market failure. (10 Marks)

Explain the relationship between public finance and market failure.

Explain the difference between a trade deficit, a current account deficit, and a balance of payments...

Explain the difference between a trade deficit, a current account deficit, and a balance of payments deficit. Explain fully why a current account deficit can be good for a country.

Pls explain the relationship between “demand, supply, and equilibrium in the market for a public good.”...

Pls explain the relationship between “demand, supply, and equilibrium in the market for a public good.” By plotting the necessary graphics.

Explain the relationship between magnetism and current. How are magnets and electric charges similar? How are...

Explain the relationship between magnetism and current. How are magnets and electric charges similar? How are they different? What is something new you learned about electricity and magnetism?

what is the relationship between National account and money and banking?

Problem 1.1: Making Sense of the Trade Deficit a) Explain the difference between the current account...

Problem 1.1: Making Sense of the Trade Deficit a) Explain the difference between the current account and the capital and financial account in the balance of payments. b) What is a trade deficit? c) Assume a U.S. firm buys (imports) $5 million (in U.S. dollars) of foreign goods. That transaction by itself increases the trade deficit by $5 million. But, the $5 million will flow back to the United States to purchase either (i) U.S. goods and services or (ii)...

Question