Question 1

Since imports are positively related to domestic income, a trade deficit will grow as domestic income expands.

Accepted Answer

As domestic income expands, people will have more money to spend, leading to an increase in imports. This will result in a trade deficit, as the value of imports is greater than the value of exports. Therefore, the statement is true.

Question 2

Adding net exports to aggregate expenditure always
A)increases real GDP
B)shifts the aggregate expenditure line down
C)increases the slope of the aggregate expenditure line
D)decreases the slope of the aggregate expenditure line
E)decreases GDP

Accepted Answer

D

Question 3

The marginal propensity to import is defined as
A)the fraction of each additional dollar of income that is spent on imported products
B)the fraction of each additional dollar of income that is spent on exports minus imports
C)the amount spent on imports at each level of income
D)the change in income divided by the change in imports
E)the level of imports divided by the level of income

Accepted Answer

The marginal propensity to import (MPI) is the fraction of each additional dollar of income that is spent on imported products. It represents the change in imports divided by the change in income, and is a crucial determinant of a country's balance of trade.

Question 4

If net exports increase by $400 billion at every level of income, the aggregate expenditure line will
A)shift upward by $400 billion
B)shift downward by $400 billion
C)shift upward by more than $400 billion because of the multiplier effect
D)shift upward by less than $400 billion
E)shift downward by more than $400 billion because of the multiplier effect

Accepted Answer

Net exports are a component of aggregate expenditure. An increase in net exports by $400 billion means an increase in aggregate expenditure by the same amount. Thus, the aggregate expenditure line will shift upward by $400 billion. There is no multiplier effect in this scenario.

Question 5

If the MPC equals 0.7 and the MPM equals 0.10, then the spending multiplier equals
A)10
B)9
C)5
D)3.3
E)1.1

Accepted Answer

The answer of If the MPC equals 0.7 and the...

Question 6

The formula for the spending multiplier in model with variable net exports trade equals 1/(MPS + MPM).

Accepted Answer

The formula for the spending multiplier in a model with variable net exports trade equals 1/(MPS + MPM). This is a true statement.

Question 7

What is the impact of net exports on the aggregate expenditure line?
A)They cause the line to shift upward in a parallel fashion.
B)They cause the line to shift downward in a parallel fashion.
C)They make the line steeper.
D)They make the line flatter.
E)They make the slope of the line equal 1.

Accepted Answer

The answer of What is the impact of net exports...

Question 8

Exports are an injection into the circular flow.

Accepted Answer

Exports are a form of injection into the circular flow because they represent an inflow of money from other countries into the domestic economy, which can stimulate economic growth and increase employment.

Question 9

If net exports increase by $350 billion at every level of income, the net export line will
A)shift upward by $350 billion
B)shift downward by $350 billion
C)shift upward by more than $350 billion because of the multiplier effect
D)shift upward by less than $350 billion
E)shift downward by more than $350 billion because of the multiplier effect

Accepted Answer

An increase in net exports means that at every level of income, the economy is selling more goods and services to the rest of the world than it is buying from them. This leads to an increase in the net export component of aggregate demand, which is shown graphically as an upward shift of the net export line. The size of the shift is equal to the initial change in net exports, which in this case is $350 billion. There is no multiplier effect in this question, so choices C and E are incorrect. And since the increase in net exports is exactly $350 billion, the shift cannot be less than $350 billion, so choice D is also incorrect.

Question 10

Net exports are a leakage from the circular flow.

Accepted Answer

Net exports are an injection into the circular flow, as they represent spending on a country's goods and services by foreign buyers, adding to the economy's income.

Question 11

Imports are a leakage from the circular flow.

Accepted Answer

Imports represent spending on goods and services produced abroad, which does not circulate within the domestic economy and creates a leakage from the circular flow of income.

Question 12

When variable net exports are included in aggregate expenditures, the two leakages from the circular flow are
A)exports and saving
B)exports and consumption
C)exports and investment
D)imports and saving
E)imports and investment

Accepted Answer

The two leakages from the circular flow when considering net exports are imports and saving. Imports represent spending on foreign goods, which is money leaving the economy, and saving is income not spent on domestic goods and services.

Question 13

If the MPC = 0.9 and the MPM = 0.1, then the spending multiplier with variable net exports equals 8.

Accepted Answer

The spending multiplier with variable net exports is given by the formula: 1/(1-MPC+MPM). Plugging in the values, we get 1/(1-0.9+0.1) = 1/0.2 = 5. Therefore, the statement is false.

Question 14

In a model which includes variable net exports, the spending multiplier equals 1/(MPS + MPM).

Accepted Answer

In a model which includes variable net exports, the spending multiplier equals 1/(MPS + MPT + MPM), where MPS is the marginal propensity to consume, MPT is the marginal propensity to tax, and MPM is the marginal propensity to import. The inclusion of net exports changes the formula for the spending multiplier, but the denominator still includes the sum of all the marginal propensities. Therefore, the statement is true.

Question 15

When variable net exports are added to the aggregate expenditure line, the resulting planned aggregate expenditure line becomes
A)steeper because net exports increase as real domestic income increases
B)flatter because net exports increase as real domestic income increases
C)steeper because net exports decrease as real domestic income increases
D)flatter because net exports decrease as real domestic income increases
E)flatter because imports decrease as real domestic income increases

Accepted Answer

Net exports typically decrease as real domestic income increases because imports tend to rise with higher income, making the aggregate expenditure line flatter.

Question 16

An economy that engages in international trade will have a steeper aggregate expenditure line than one that is the same in all other respects, except for the absence of international trade.

Accepted Answer

International trade can affect the slope of the aggregate expenditure line, but it does not necessarily make it steeper. The slope depends on the marginal propensity to consume domestically and abroad, and other factors like exchange rates and trade policies.

Question 17

The formula for the spending multiplier when variable net exports are included in aggregate expenditures is
A)1/(MPS + MPM)
B)1/MPS
C)MPS * MPM
D)1/(MPC * MPM)
E)1/(1 - MPC - MPM)

Accepted Answer

The answer of The formula for the spending multiplier when...

Question 18

If variable net exports increase by the same amount at every level of income, then there is an upward and parallel shift of the net export line.

Accepted Answer

When variable net exports increase by the same amount at every level of income, it means that the net export function is independent of income. In such a scenario, the net export line will shift upward and in a parallel manner, indicating that net exports will increase by the same amount at every income level.

Question 19

Adding variable net exports to aggregate expenditure always increases the slope of the aggregate expenditure line.

Accepted Answer

Net exports can be positive or negative. If net exports are negative, they can decrease the slope of the aggregate expenditure line.

Question 20

The larger the marginal propensity to import, the __________ during each round of spending and __________ the resulting spending multiplier.
A)greater the leakage; the smaller
B)smaller the leakage; the smaller
C)smaller the leakage; the larger
D)greater the leakage; the larger
E)smaller the injection; the larger

Accepted Answer

A larger marginal propensity to import means more income is spent on imports, leading to greater leakage from the domestic economy, which reduces the spending multiplier.

Quiz 24: Variable Net Exports Revisited

Since imports are positively related to domestic income, a trade deficit will grow as domestic income expands.

Adding net exports to aggregate expenditure always

The marginal propensity to import is defined as

If net exports increase by $400 billion at every level of income, the aggregate expenditure line will

If the MPC equals 0.7 and the MPM equals 0.10, then the spending multiplier equals

The formula for the spending multiplier in model with variable net exports trade equals 1/(MPS + MPM).

What is the impact of net exports on the aggregate expenditure line?

Exports are an injection into the circular flow.

If net exports increase by $350 billion at every level of income, the net export line will

Net exports are a leakage from the circular flow.

Imports are a leakage from the circular flow.

When variable net exports are included in aggregate expenditures, the two leakages from the circular flow are

If the MPC = 0.9 and the MPM = 0.1, then the spending multiplier with variable net exports equals 8.

In a model which includes variable net exports, the spending multiplier equals 1/(MPS + MPM).

When variable net exports are added to the aggregate expenditure line, the resulting planned aggregate expenditure line becomes

An economy that engages in international trade will have a steeper aggregate expenditure line than one that is the same in all other respects, except for the absence of international trade.

The formula for the spending multiplier when variable net exports are included in aggregate expenditures is

If variable net exports increase by the same amount at every level of income, then there is an upward and parallel shift of the net export line.

Adding variable net exports to aggregate expenditure always increases the slope of the aggregate expenditure line.

The larger the marginal propensity to import, the during each round of spending and the resulting spending multiplier.