Table 13.1.Canada's Saving,Investment,Import,and Export Functions (in billions of dollars) Under a System of Fixed Exchange Rates
Export Function X = 3000
Investment Function I = 1000
Saving Function S = -1000 + 0.2Y
Import Function M = 500 + 0.25Y
-Refer to Table 13.1.If weak economic conditions abroad result in Canada's exports falling from $3000 billion to $2500 billion,Canada's equilibrium income falls by approximately:
A) $888 billion
B) $990 billion
C) $1110 billion
D) $1220 billion

Question

Quizplus · Accepted Answer

When exports fall from $3000 billion to $2500 billion, this reduces the value of X in the saving and investment equilibrium (S = I + X - M). As a result, the new equilibrium income is given by:
S = I + X - M
-1000 + 0.2Y = 1000 + 2500 - (500 + 0.25Y)
Simplifying and solving for Y, we get:
Y = $7,400 billion
Compared to the initial equilibrium income of $8,510 billion, this represents a reduction of approximately $1,110 billion. Therefore, the correct answer is C.

Table 131Canada's Saving,Investment,Import,and Export Functions (In Billions of Dollars) Under a a System