An increase in domestic economic growth rate, greater than that of trading partners, leads to a deterioration in the current account because it leads to:

Question

Quizplus · Accepted Answer

An increase in domestic economic growth often results in higher income and consumption levels, leading to increased demand for goods, including those from abroad. This scenario typically results in an increase in imports. However, the growth rate itself does not directly affect exports, which are more influenced by the economic conditions of trading partners. Therefore, the correct answer is an increase in imports without a corresponding change in exports.

An Increase in Domestic Economic Growth Rate, Greater Than That