Undervalued Currency Boosts Exports for Current Account Surplus

Steps:

• Recall that a current account surplus occurs when exports exceed imports plus net transfers and income.
• Identify factors affecting trade balance, the main current account component.
• Evaluate how each choice influences net exports: exports minus imports.
• Select the factor that consistently increases net exports over time.

Why B is correct:

• An undervalued exchange rate makes domestic goods cheaper abroad, boosting exports and reducing imports per the relative price effect in international trade theory.

Why the others are wrong:

• A: Low domestic savings rate increases borrowing, leading to higher imports and deficits.
• C: High protectionist policies by others restrict the country's exports, worsening the trade balance.
• D: Low investment income from abroad directly reduces the current account surplus.

Final answer: B