If exports increase domestic output and employment, which macroeconomic relationship does this show?
Answer and explanation
Correct answer: The relationship between the external sector and national income
Exports are purchases of domestic goods and services by the foreign sector. An increase in exports raises external demand and, other things remaining equal, can increase firms’ sales, production and demand for labour. Through the circular flow and multiplier process, the resulting income may create further spending. Thus exports connect the external sector with domestic output, employment and national income.
Frequently asked questions
What is the correct answer to this question?
The relationship between the external sector and national income
Why is this the correct answer?
Exports are purchases of domestic goods and services by the foreign sector. An increase in exports raises external demand and, other things remaining equal, can increase firms’ sales, production and demand for labour. Through the circular flow and multiplier process, the resulting income may create further spending. Thus exports connect the external sector with domestic output, employment and national income.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
