The figure given below represents the circular flow of income between households,firms,financial intermediaries,and foreign countries. Figure 4.2
- Refer to Figure 4.2.Assume investment spending decreases by $4,000.Everything else being the same,what must be the new value of net trade flows in order to maintain total expenditures on business firms' output at $35,000?
A)-$2,500
B)-$1,500
C)$3,500
D)$6,500
E)$7,500

Question

The figure given below represents the circular flow of income between households,firms,financial intermediaries,and foreign countries. Figure 4.2 
- Refer to Figure 4.2.Assume investment spending decreases by $4,000.Everything else being the same,what must be the new value of net trade flows in order to maintain total expenditures on business firms' output at $35,000?
A)-$2,500 
B)-$1,500 
C)$3,500 
D)$6,500 
E)$7,500

Quizplus · Accepted Answer

To maintain total expenditures at $35,000 after a $4,000 decrease in investment spending, net trade flows must increase by $4,000. If the initial net trade flows were $2,500, increasing them by $4,000 results in $6,500.

The Figure Given Below Represents the Circular Flow of Income