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Chako Chako
wrote...
Posts: 2948
8 years ago
Monetary expansion causes the current account balance to increase in the short run. Discuss. Is the same the case for fiscal expansion?
Textbook 
International Economics: Theory and Policy

International Economics: Theory and Policy


Edition: 10th
Author:
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Replies
wrote...
8 years ago
Am increase in the money supply leads to an increase in Y and E (output increases and the currency depreciates, respectively). Because of the currency depreciation, domestic goods are now cheaper compared to foreign goods. Exports increase and imports decrease, therefore the CAB increases.
An expansion of fiscal policy actually reduces the CAB: the DD curve is shifted right. Therefore Y rises, but E falls (output rises but the currency appreciates.) Domestic goods are more expensive, and the CAB falls.
Chako Author
wrote...
8 years ago
Correct!
wrote...
8 years ago
Happy to help you!
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