Question

If saving is less than domestic investment, then a. there is a trade deficit and Y > C + I + G. b. there is a trade deficit and Y < C + I + G. c. there is a trade surplus and Y > C + I + G. d. there is a trade surplus and Y < C + I + G

Question 49

In the short run, an increase in the money supply causes interest rates to

a. increase, and aggregate demand to shift right.

b. increase, and aggregate demand to shift left.

c. decrease, and aggregate demand to shift right.

d. decrease, and aggregate demand to shift left.

Answer 1

The correct answer is (b) there is a trade deficit and Y < C + I + G

National Saving = Private Saving + Government Saving

Private saving = Y - C - T and Government Saving = G - T

so National Saving = Y - C - G

and Investment = Y - C - G - NX , where NX = Exports - Imports

so I = S - NX = > S = I + NX implies NX < 0

Hence Trade balance is negative so there is trade deficit.

Now Y = C + I + G + NX as NX < 0

hence Y < C + I + G

Hence correct answer is (b) there is a trade deficit and Y < C + I + G.

Answer 49

The correct answer is (c) decrease, and aggregate demand to shift right.

If Money supply increases LM curve will shift to the Right, hence output will increase and interest Rate will increase and hence with given price level output will increase. Hence this will shift AD Curve to the Right.

Hence, The correct answer is (c) decrease, and aggregate demand to shift right.