Let Imports Exceed Exports by $100 Billion

question 21

Multiple Choice

Let imports exceed exports by $100 billion. Compared with a situation of balanced trade at the same level of GDP, domestic income is

• A) lower than it would have been otherwise by the full $100 billion.
• B) higher than it would have been otherwise by the full $100 billion.
• C) lower than it would have been otherwise by an amount reflecting debt service on the foreign borrowing required to finance the $100 billion trade deficit.
• D) higher than it would have been otherwise by an amount reflecting the interest earnings accruing to domestic importers in exchange for opening new markets.
• E) the same as it would have been otherwise.

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Definitions:

Z Statistic

A type of standard score that indicates how many standard deviations an element is from the mean of its population.

Normal Distribution

A bell-shaped frequency distribution curve that is symmetric about the mean, showing that data near the mean are more frequent in occurrence.

One-tailed Test

A statistical hypothesis test in which the alternative hypothesis specifies a direction of the effect.

One-tailed Hypothesis Test

A statistical test in which the region of rejection is on only one side of the sampling distribution, used when a specific direction for the data is predicted.