Suppose there is an increase in exports.Assuming the price level is held constant, which one of the following best describes the sequence of changes in the economy?
A)Induced expenditure increases, real GDP increases, autonomous expenditure increases, real GDP increases more, autonomous expenditure increases again, etc.
B)Induced expenditure increases, real GDP increases, autonomous expenditure increases, and the price level increases, lowering autonomous expenditure and real GDP increases by a smaller amount.
C)Induced expenditure increases, autonomous expenditure increases, real GDP increases, and consumption increases.
D)Autonomous expenditure increases, real GDP increases, induced expenditure increases, real GDP increases more, induced expenditure increases again, and the process continues until equilibrium expenditure is reached.
E)Autonomous expenditure increases, induced expenditure increases, real GDP increases, and the price level rises.

Question

Quizplus · Accepted Answer

An increase in exports is considered an increase in autonomous expenditure, which leads to an increase in real GDP. This increase in real GDP then leads to an increase in induced expenditure, further increasing real GDP. This cycle continues until equilibrium is reached, as described in option D.

Suppose There Is an Increase in Exports