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Suppose U.S national income has increased unexpectedly recently. This will increase U.S exports. A. True B....

Suppose U.S national income has increased unexpectedly recently. This will increase U.S exports. A. True B. False

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Answer #1

Answer:

Correct answer is:

B. False.

When national income increases, demand for imports (not exports) will increase.

If ?Y= change in national income.,

?M = change in imports,

m = marginal propensity to import,

Then,

?M = m. ?Y

Hence an increase in income will increase imports and a  decrease in income will decrease imports.

Although it may not be true that an increase in national income will lead to increase in exports but vice versa is true; an increase in export will lead to increase in national income since export and national income has a direct relationship.

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