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)? intersects (X-M)?,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 ____.
A) Rises to $60 billion, surplus of $2.5 billion
B) Rises to $60 billion, surplus of $5 billion
C) Falls to $40 billion, deficit of $2.5 billion
D) Falls to $40 billion, deficit of $5 billion

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)? intersects (X-M)?,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 ____.
A) Rises to $60 billion, surplus of $2.5 billion 
B) Rises to $60 billion, surplus of $5 billion 
C) Falls to $40 billion, deficit of $2.5 billion 
D) Falls to $40 billion, deficit of $5 billion

Quizplus · Accepted Answer

An increase in exports by $5 billion will increase the equilibrium income, leading to a rise in income to $60 billion. This increase in exports will result in a trade surplus, as exports exceed imports by $2.5 billion.

Figure 132