Author Question: Please discuss the volume effect and the value effect in regards to how the current account will ... (Read 360 times)

soccerdreamer_17 · **on:** Jun 30, 2018

Please discuss the volume effect and the value effect in regards to how the current account will move given a change in the real exchange rate.

What will be an ideal response?

Question 2

Intertemporal trade is

A) the exchange of goods but not services for claims to future goods.
B) the exchange of services but not goods for claims to future services.
C) the exchange of good and services for claims to future goods and services.
D) the exchange of domestic goods and services for foreign goods and services.
E) the type of trade that the U.S. government focuses most upon.

LVPMS · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

The volume effect takes place when consumer spending shifts on export and import quantities, while the value effect results when the domestic output worth of a given amount of foreign imports is changed. It is assumed that the volume effect outweighs the value effect, so that, other things equal, a real depreciation of the currency improves the current account.

Answer to Question 2

C