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what effect does an increase in exports have? a. it leads to an even larger increase...

what effect does an increase in exports have?

a. it leads to an even larger increase in equilibrium income

b. it leads to an even larger decrease in equilibrium income

c. it leads to a smaller increase in equilibrium income

d. it leads to a smaller decrease in equilibrium income

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Answer #1

Ans- a) it leads to an even larger increase in equilibrium income.

Solution- Suppose there is an increase in exports so that export curve shifts upward from X0 to X1. From the figure below, it can be seen that the equilibrium income increases to Y1. Thus, increase in exports (ΔX) leads to the increase in income (ΔY) which is larger than change in exports (ΔX).

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