Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System

-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)? intersects (X - M)?,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Question

Figure 13.4. Canadian Economy Under a Fixed Exchange Rate System
 
-Refer to Figure 13.4.Starting at equilibrium income $100 billion,where (S - I)? intersects (X - M)?,an autonomous decrease in Canadian exports of $10 billion leads to a $20 decrease in income and a trade deficit of $5 billion.

Quizplus · Accepted Answer

According to the figure, an autonomous decrease in Canadian exports would cause a leftward shift in the (X-M) curve, causing it to intersect with the (S-I) curve at a lower level of income (around $80 billion). At this lower income level, the trade deficit would indeed be $5 billion. Therefore, the statement is true.

Figure 134