For each of the following transactions, state the effect on the four components
ID: 1221892 • Letter: F
Question
For each of the following transactions, state the effect on the four components of aggregate expenditure.
a. Your mother buys a new car from a U.S. producer.
Of the four components of aggregate expenditure:
a. investment rises and net exports do not change.
b. investment rises and net exports fall.
c. net exports do not change and government purchases rise.
d. consumption rises and net exports do not change.
e. consumption rises and net exports fall.
b. Your mother buys a new car imported from Sweden.
Of the four components of aggregate expenditure:
a. investment rises and net exports do not change.
b. consumption rises and net exports fall.
c. net exports do not change and government purchases rise.
d. consumption rises and net exports do not change.
c. Your mother’s car rental business buys a new car from a U.S. producer.
Of the four components of aggregate expenditure:
a. consumption rises and net exports fall.
b. net exports do not change and government purchases rise.
c. consumption rises and net exports do not change.
d. investment rises and net exports do not change.
d. Your mother’s car rental business buys a new car imported from Sweden.
Of the four components of aggregate expenditure:
a. investment falls and net exports rise.
b. investment rises and net exports fall.
c. consumption rises and net exports fall.
d. consumption falls and net exports remain the same.
e. The U.S. government buys a new, domestically produced car for the use of your mother, who has been appointed the ambassador to Sweden.
Of the four components of aggregate expenditure:
a. consumption rises and net exports fall.
b. investment rises and net exports do not change.
c. net exports do not change and government purchases rise.
d. consumption rises and net exports do not change.
Explanation / Answer
a d. consumption rises and net exports do not change
b b. consumption rises and net exports fall.
c d. investment rises and net exports do not change.
d b. investment rises and net exports fall.
e. c. net exports do not change and government purchases rise.
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