Question

An increase in disposable income worsens the current account because O A. consumers demand more of all goods, including imported goods, while exports are not affected. B. it raises consumption which reduces exports, because now there are fewer goods that can be exported, and more are consumed domestically. C. it lowers the real exchange rate and therefore worsens the current account. D. it raises the real exchange rate and therefore worsens the current account.

Answer 1

The answer to the question is A- An increase in disposable income worsens the current account​ because consumers demand more of all goods, including imported goods, while exports are not affected.

Disposable income, also known as disposable personal income (DPI), is the amount of money that households have available for spending and saving after income taxes have been accounted for. Disposable personal income is often monitored as one of the many key economic indicators used to gauge the overall state of the economy.

Disposable income is an important measure of household financial resources. For example, consider a family with a household income of $100,000, and the family has an effective income tax rate of 25% (versus marginal tax rate). This household's disposable income would then be $75,000 ($100,000 - $25,000). Economists use DPI as a starting point to gauge households' rates of savings and spending.