Suppose there is an increase in exports. Assuming the price level is held constant, which one of the following best describes the sequence of changes in the economy?
A)Autonomous expenditure increases, induced expenditure increases, real GDP increases, and the price level rises.
B)Induced expenditure increases, autonomous expenditure increases, real GDP increases, and consumption increases.
C)Induced expenditure increases, real GDP increases, autonomous expenditure increases, and the price level increases, lowering autonomous expenditure and real GDP increases by a smaller amount.
D)Induced expenditure increases, real GDP increases, autonomous expenditure increases, real GDP increases more, autonomous expenditure increases again, etc.
E)Autonomous expenditure increases, real GDP increases, induced expenditure increases, real GDP increases more, induced expenditure increases again, and the process continues until equilibrium expenditure is reached.

Question

Quizplus · Accepted Answer

An increase in exports raises autonomous expenditure, leading to an increase in real GDP. This increase in GDP induces further expenditure, creating a multiplier effect until equilibrium is reached.

Suppose There Is an Increase in Exports