Current Account and Expansionary Fiscal and Monetary Policy

CFA Level II
#1

What is the effect of Expansionary Fiscal Policy on the Current Account and of Expansionary Monetary Policy on the Current Account? Thanks, I can’t tell if I wrote this down wrong on my note card and I do not have that book with me.

#2

expansionary monetary -> current account surplus expansionary fiscal -> current account deficit

#3

I was just looking at this. I haven’t gotten to economics yet. Can you explain this maratikus?

#4

Here is my approach to remember the relationship: expansionary monetary -> currency depreciation -> domestic products are more competitive -> exports increase -> current account surplus expansionary fiscal -> currency appreciation -> … -> current account deficit

#5

Easy enough, thank you.

#6

Thanks Maratikus… Do you have an intuative way to think about why Fiscal Expansion would cause currency appreciation?

#7

Fiscal expansion -> increased Aggregate Demand -> increases real rate -> currency appreciation.

#8

Thanks!