Question

1. Briefly describe the difference between the “merchandise trade balance” and the “current account balance.” Which one do we typically hear about on the news?

2. In the context of the national savings and investment identity, briefly describe the main sources for both the supply of and demand for capital in the U.S. economy.

3. Briefly explain how short-term movements in the business cycle affect the trade balance.

Answer 1

Answer: 1) Merchandise trade balance and current account balance both are the part of balance of trade.

The sum of all export and import balance differences is known as merchandise trade balance. When one country import any goods and services from other country then both countries make some balances. The difference between these balances is called the merchandise trade balance.

Where,

The current account balance is the balance of goods and services like interest rates, net rents, dividends, profits and current transferred payments which are created by the trade.

On news we typically hear about the merchandise trade balance.