If the foreign income elasticity of the demand for exports is 2, then:
A) a 1% change in foreign income will cause a 2% change in the domestic economy's exports.
B) a 2% change in foreign income will cause a 1% change in the domestic economy's exports.
C) a 1% change in domestic income will cause a 2% change in the domestic economy's exports.
D) a 2% change in domestic income will cause a 1% change in the domestic economy's exports.
E) a 2% change in domestic income will cause a 5% shift in the domestic economy's imports.

Question

Quizplus · Accepted Answer

The foreign income elasticity of demand for exports measures how sensitive the demand for a country's exports is to changes in the income levels of foreign countries. An elasticity of 2 means that a 1% increase in foreign income leads to a 2% increase in the demand for exports from the domestic economy.

If the Foreign Income Elasticity of the Demand for Exports