The open economy equilibrium business-cycle model predicts that the real current account balance will be:

Question

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The open economy equilibrium business-cycle model predicts that the real current account balance will be countercyclical. This means that during an economic expansion, the current account balance will decrease as imports increase and during a recession, the current account balance will increase as imports decrease. This is because during an expansion, the demand for imports increases due to increased consumer and business spending, while during a recession, the demand for imports decreases as consumption and investment fall.

The Open Economy Equilibrium Business-Cycle Model Predicts That the Real