Suppose the rest of the world experiences an expansion that causes an increase in foreign income. From the domestic economy's perspective, this foreign income increase will cause which of the following as the domestic economy adjusts to the rise in foreign income?

Question

Quizplus · Accepted Answer

An increase in foreign income leads to higher demand for domestic goods, boosting net exports. This, in turn, increases domestic income as domestic producers sell more abroad. Additionally, with higher domestic income, domestic consumers may increase their consumption, including imports, leading to an increase in imports as well.

Suppose the Rest of the World Experiences an Expansion That