The factors that influence a country's current account balance such as productivity, inflation and the exchange rate
Several forces shape whether a country earns more from the rest of the world than it spends. Productivity, inflation, and the exchange rate are the three most important.
Formula
Current Account Balance = (X − M) + Net Income + Net Transfers
Real World
When the UK's inflation ran above that of Germany in the early 2010s, British exports became relatively more expensive, widening the UK's current account deficit as overseas buyers switched to cheaper German alternatives.
Exam Focus
For 'evaluate' questions, always weigh the Marshall-Lerner condition when discussing exchange rate effects on the current account.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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