Question

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

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.