Which statement best describes the current account balance in the short run?
A) Monetary expansion lowers the current account balance.
B) Monetary expansion keeps the current account balance the same.
C) Fiscal expansion increases the current account balance.
D) Fiscal expansion keeps the current account balance the same.
E) Monetary expansion increases the current account balance.

Question

Quizplus · Accepted Answer

Monetary expansion increases the money supply and can lead to a decrease in the exchange rate. A decrease in the exchange rate makes exports cheaper and more competitive, while imports become more expensive. Therefore, an increase in exports and decrease in imports will increase the current account balance.

Which Statement Best Describes the Current Account Balance in the Short