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 saving of $10 billion leads to a $20 billion increase 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 saving of $10 billion leads to a $20 billion increase in income and a trade deficit of $5 billion.

Quizplus · Accepted Answer

According to the diagram, an autonomous decrease in saving will shift the (S - I) line downward, causing it to intersect with the (X - M) line at a higher income level ( to _{0). This leads to an increase in income by more than double the decrease in saving ($20 billion increase for $10 billion decrease in saving). At this new income level, the trade balance is in deficit by $5 billion. Therefore, the statement is true.}

Figure 134