Figure 13.2.Australian Economy Under a Fixed Exchange Rate System

-Refer to Figure 13.2.The slope of the (X-M) schedule and (S-I) schedule indicates that Australia's foreign trade multiplier is:
A) 0.5
B) 1.0
C) 1.5
D) 2.0

Question

Figure 13.2.Australian Economy Under a Fixed Exchange Rate System
 
-Refer to Figure 13.2.The slope of the (X-M) schedule and (S-I) schedule indicates that Australia's foreign trade multiplier is:
A) 0.5 
B) 1.0 
C) 1.5 
D) 2.0

Quizplus · Accepted Answer

The slope of the (X-M) schedule is 0.2 and the slope of the (S-I) schedule is 0.4. Therefore, the foreign trade multiplier is calculated as follows: 1/(1-0.2+0.4) = 2.0.

Figure 132