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 Copyright2012 Pearson Education.All rights reserved. 13-10Copyright © 2012 Pearson Education. All rights reserved. 13-10 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