Suppose the Rest of the World Experiences a Recession That

question 27

Multiple Choice

Suppose the rest of the world experiences a recession that causes a reduction in foreign income (Y*) .From the domestic economy's perspective,this reduction in foreign income will cause which of the following as the domestic economy adjusts to the drop in Y*?

• A)a reduction in income and a reduction in imports
• B)a reduction in imports and an increase in net exports
• C)the NX line to shift up
• D)an ambiguous effect on net exports

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Definitions:

Bonds Dated

The date specified in the bond document when the bond was issued, important for determining interest payments and maturity.

Fair Value

An estimate of the price at which an asset would be bought or sold in a current transaction between willing parties, not under compulsion.

Market Price

The prevailing market rate at which transactions for assets or services are conducted.

Investment Sold

The act of divesting an asset or security, converting an investment back into cash or its cash equivalent.