Determinants of Aggregate Demand in an Open Economy Determinants of the current account The Ca balance is viewed as the demand for a country's exports(EX) less that country's own demand for imports(IM) The Ca balance is determined by two main factors The domestic currency's real exchange rate against foreign currency(q=EP*/P) Domestic disposable income (yo Copyright C 2003 Pearson Education, Inc Slide 16-8Copyright © 2003 Pearson Education, Inc. Slide 16-8 ▪ Determinants of the Current Account • The CA balance is viewed as the demand for a country’s exports (EX) less that country's own demand for imports (IM). • The CA balance is determined by two main factors: – The domestic currency’s real exchange rate against foreign currency (q = EP*/P) – Domestic disposable income (Y d ) Determinants of Aggregate Demand in an Open Economy