Expenditure and Production in an Open Economy CA= EX-IM=Y-(C+I+G) When production domestic expenditure exports> imports current account >o and trade balance >0 when a country exports more than it imports, it earns more income from exports than it spends on imports net foreign wealth is increasing When production domestic expenditure, exports imports current account<o and trade balance o when a country exports less than it imports, it earns less income from exports than it spends on imports net foreign wealth is decreasing Copyright 2012 Pearson Education. All rights reserved 13-12Copyright © 2012 Pearson Education. All rights reserved. 13-12 Expenditure and Production in an Open Economy CA = EX – IM = Y – (C + I + G ) • When production > domestic expenditure, exports > imports: current account > 0 and trade balance > 0 – when a country exports more than it imports, it earns more income from exports than it spends on imports – net foreign wealth is increasing • When production < domestic expenditure, exports < imports: current account < 0 and trade balance < 0 – when a country exports less than it imports, it earns less income from exports than it spends on imports – net foreign wealth is decreasing