With intertemporal trade,trade imbalances move in tandem with:

Question

Quizplus · Accepted Answer

Intertemporal trade involves borrowing and lending between countries, which leads to financial flows across borders. As a result, trade imbalances tend to move in tandem with financial flows. In other words, if a country is borrowing from other countries to finance its current account deficit, this will lead to a capital account surplus, which will increase the supply of the country's currency in the foreign exchange markets and lead to a depreciation of the currency. This, in turn, will make the country's exports more competitive and imports more expensive, and help to correct the trade imbalance. Conversely, if a country is lending to other countries to finance its current account surplus, this will lead to a capital account deficit, which will reduce the supply of the country's currency in the foreign exchange markets and lead to an appreciation of the currency. This, in turn, will make the country's exports less competitive and imports cheaper, and help to correct the trade imbalance.

With Intertemporal Trade,trade Imbalances Move in Tandem With