Figure 13.2.Australian Economy Under a Fixed Exchange Rate System

-Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)0 intersects (X-M)0,suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Question

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System
 
-Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I)0 intersects (X-M)0,suppose that dwindling thriftiness leads to an autonomous decrease in Australian saving to $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Quizplus · Accepted Answer

The autonomous decrease in saving will lead to a decrease in the (S-I) curve. This will cause the equilibrium income to rise to $60 billion, where the new (S-I) curve intersects the (X-M) curve. The trade account will move to a deficit of $2.5 billion, as imports will now exceed exports.

Figure 132