Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System

-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Question

Figure 13.4.Canadian Economy Under a Fixed Exchange Rate System
 
-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)0 intersects (X - M)0,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Quizplus · Accepted Answer

According to Figure 13.4, a decrease in exports leads to a reduction in net exports, shifting the (X - M) curve downwards. This results in a decrease in equilibrium income, marked by a shift along the (S - I) curve to a new intersection point where income is $80 billion and the trade deficit is $5 billion. Therefore, the statement that a $10 billion decrease in exports leads to a $20 decrease in income and a trade deficit of $5 billion is true.

Figure 134