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 increased thriftiness leads to an autonomous increase in Australian saving of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.
A) Rises to $60 billion, deficit of $2.5 billion
B) Rises to $60 billion, deficit of $5 billion
C) Falls to $40 billion, surplus of $2.5 billion
D) Falls to $40 billion, surplus 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 increased thriftiness leads to an autonomous increase in Australian saving of $5 billion.Australian income thus ____ which leads to Australia's trade account moving to a ____.
A) Rises to $60 billion, deficit of $2.5 billion 
B) Rises to $60 billion, deficit of $5 billion 
C) Falls to $40 billion, surplus of $2.5 billion 
D) Falls to $40 billion, surplus of $5 billion

Quizplus · Accepted Answer

Increased thriftiness leads to higher savings, reducing consumption and thus income. This decrease in income results in a lower demand for imports, improving the trade balance to a surplus.

Figure 132