Figure 132

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 changing preferences lead to an autonomous increase in Australian imports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

A) Rises to $60 billion,surplus of $2.5 billion
B) Rises to $60 billion,surplus of $5 billion
C) Falls to $40 billion,deficit of $2.5 billion
D) Falls to $40 billion,deficit of $5 billion