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:

Wasteful

Referring to the use or allocation of resources in an inefficient manner, leading to unnecessary loss or expenditure.

Interstate Highway

A network of controlled-access highways that form part of the National Highway System in the United States, facilitating interstate and long-distance travel.

Nonexcludability

A characteristic of public goods where it is impossible or highly costly to exclude individuals from consuming the good.

Marginal Costs

The hike in total expenditure resulting from the production of an incremental unit of a product or service.