Question:
Consider the following statements:
Statement 1: Net exports vary negatively with domestic income and with the domestic price level.
Statement 2: The government’s fiscal deficit varies negatively with domestic income.
Which of the following is most likely?
A
Both statements are correct.
Explaination
• An increase in domestic income increase imports, reducing net exports.
• An increase in the domestic price level increases imports and decreases exports, reducing net exports.
• An increase in income increases tax revenue, reducing the budget deficit
Take more free practice tests for other ASVAB topics with our cfa level 1 practice questions now!