9. Marginal propensity to import and net exports Aa Aa The following graph shows

Question

9. Marginal propensity to import and net exports Aa Aa The following graph shows net exports for a hypothetical country. NET EXPORTS (Billions of dollars) 50 40 30 20 10 -10 -20 0 100 200 300 400 500 600 700 REAL GDP (Billions of dollars According to the graph, when the country is producing a real GDP of $700 billion, exports are imports. The slope of the net exports function is equal to the you that for every dollar increase in real GDP, change (because they are assumed to be autonomous with respect to real GDP). than and thus tells do not by and

Explanation / Answer

Net exports= Exports-Imports

When country is producing $700 billion real GDP, then net exports<0 which implies that Exports<Imports.

The slope of line=(y2-y1)/(x2-x1)

Thus slope of net exports line=(0-30)/(600-100)=-30/500=-0.06

This tells you that for every $ increase in GDP, net exports falls by $0.06 and the marginal propensity to import/export and net exports does not change.

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