Question

Say that two things are happening at once, US demand is increasing for imports, and this...

  1. Say that two things are happening at once, US demand is increasing for imports, and this is also happening worldwide, and there is less currency depreciation worldwide to export, what may happen to current account in US?
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Answer #1

The current account is the difference between the exports and imports expenses.

Current Account= Total exports – Total Imports

As the demand for imports in the USA is increasing, the total import part of above equation will be increasing and it will require the US to spend more foreign exchange in buying these imports. On the other hand, the currency depreciation worldwide is less, it means that more currency has to be spent to buy the imports.

Therefore the current account will result in a deficit i.e. imports value if more than the export value. This situation is termed as Current Account Deficit.

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