HI guys,
Could anyone explain to me why trade balance decreases as income increases?
Thank u,
As income increases, imports increase as well. When imports increase it worsens your trade balance.
Thank u for your answer, but does it mean that exports are not affected the same way? ( logically, if the economy’s output increases, so production is more important, they should be more exports)
Not necessarily since export are a function of foreign income. If you assume that foreign income is 0 (extreme case) then you can produce all the products you want but nothing will be exported since no foreigners will be buying your products. You have to look at the factors that affect each variable. Imports are impacted by domestic income (among other things) and exports are impacted by foreign income (among other things).
I have trouble understanding the IS, LM curve. Can any of you point me to any material or video that helped in this topic? If you can explain it, that would be great help as well.