Use the following to answer questions:
-(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in exports, holding everything else constant, which outcome is likely to occur?
A) a decrease in the nominal GDP
B) an increase in the real GDP
C) a decrease in the unemployment rate
D) an increase in the inflation rate

Question

Use the following to answer questions: 
-(Figure 7-1: Circular-Flow Model) Use Figure 7-1: Circular-Flow Model. If the circular-flow model is in equilibrium (the sum of money flowing into each box is equal to the sum of the money flowing out of it) and there is a decrease in exports, holding everything else constant, which outcome is likely to occur?
A) a decrease in the nominal GDP 
B) an increase in the real GDP 
C) a decrease in the unemployment rate 
D) an increase in the inflation rate

Quizplus · Accepted Answer

A decrease in exports will result in a decrease in the flow of money into the foreign sector of the economy, and as a result, the sum of money flowing out of the foreign sector will exceed the sum of money flowing into it. This will create an overall imbalance in the circular flow model, leading to a decrease in nominal GDP.

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