The current account surplus
A)is a decreasing function of disposable income and an increasing function of the real exchange rate.
B)is an increasing function of disposable income and an increasing function of the real exchange rate.
C)is an increasing function of disposable income and a decreasing function of the real exchange rate.
D)is a decreasing function of disposable income and a decreasing function of the real exchange rate.
E)is an increasing function of disposable income and a decreasing function of aggregate demand.

Question

Quizplus · Accepted Answer

A current account surplus typically decreases as disposable income increases because higher income leads to more imports. It increases with a higher real exchange rate as exports become cheaper for foreign buyers.

The Current Account Surplus