Question

q-1 Which of the following statements is true?

a With international trade but no government, AE = C + Ig + NX

b Negative net exports (due to "large" exports) increase aggregate expenditure beyond what it would be in a closed economy, and thus have an expansionary effect on the economy. "Foreigners are buying more domestic production!".

c Positive net exports (due to "large" imports) decrease aggregate expenditure beyond what it would be in a closed economy, and thus have a "contractionary" effect on the economy. "Americans are buying less domestic production".

d All of the above.

e Only a) and b)

q-2 Which of the following statements is true?

a Prosperity abroad generally raises our exports and transfers some of their prosperity to us. (In contrast, a recession abroad has a negative effect on our economy)

b A depreciation of the dollar lowers the price of American goods to foreigners and encourages exports from the U.S., and increases the price of US imports, which discourages the purchase of imports in the U.S.

c A depreciation of the dollar could lead to an increase in real GDP or to inflation, depending on the situation of domestic employment.

d All of the above.

e Only a) and b)

q-3 Which of the following statements is true?

a An appreciation of the dollar increases the price of American goods to foreigners and discourages exports from the U.S., and lowers the price of US imports, which encourages the purchase of imports in the U.S.

b An appreciation of the dollar could lead to a decrease in real GDP or to deflation (negative inflation), depending on the situation of domestic employment.

c A reduction of tariffs on U.S. products (abroad) may reduce our exports and depress our economy, which could make the US retaliate and worsen the situation for all countries (a trade war may ensue).

d All of the above.

e Only a) and b)

Plz give breif explanation

Answer 1

1 - Option A

With international trade and no government

AE = C + Ig + Nx

The negative net export means imports and greater and vice a versa. Hence , only option A will be correct and not the other options.

2 - option D

All of the above.

Prosperity abroad will raise our exports and are beneficial to us and recession abroad will decrease the exports of our country. Depreciation in our country will raise the export and reduce import thus , increase the real GDP.

3 - Option E

Only A and B

Reduction in tariffs on US goods abroad will lead to the rise in exports and now US goods will be cheaper for them. Appreciation of dollar will make our goods expensive for them.