Figure 13.2.Australian Economy Under a Fixed Exchange Rate System
-Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I) ₀ intersects (X-M) ₀,suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Question

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System

-Refer to Figure 13.2.Starting at equilibrium income $50 billion,where (S-I) ₀ intersects (X-M) ₀,suppose that improving economic conditions abroad lead to an autonomous increase in Australian exports of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.

Quizplus · Accepted Answer

An autonomous increase in exports of $5 billion will shift the (X-M) curve to the right. As a result, the new equilibrium point will be where (S-I) intersects with the new (X-M) curve at point S2U2B20. At this new equilibrium, income in Australia rises to $60 billion, and there is a surplus of $2.5 billion in the trade account.

Figure 132