Homework Answers
Solution:
18. When the income in US increases, people will import more as with higher income their expenditure for goods will increase (for both, domestic as well as foreign goods). As net exports = exports - imports, when imports imports increase, net exports must decrease.
Thus, the correct option is (B).
19. Equilibrium GDP = (1/(1 - MPC))*autonomous expenditure
So, increase in equilibrium GDP = (1/(1 - MPC))*increase in autonomous expenditure
As the government expenditure is directly one-to-one related with autonomous expenditure, increase of $10 billion in government expenditure increases autonomous expenditure by $10 billion.
So, increase in equilibrium GDP = (1/(1 - 0.75))*10b = 4*10b = 40b
Thus, the correct option is (D).
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