Explain how changes in foreign income can impact real GDP in a ...

[Destiiny22]

Explain how changes in foreign income can impact real GDP in a country.
 
  What will be an ideal response?

Question 2

When disposal income is 5.0 trillion, consumption expenditure is 4.5 trillion. When disposal income is 6.0 trillion, consumption expenditure is 5.0 trillion. What is the marginal propensity to consume?
 
  What will be an ideal response?

[Tabitha_2016]

Answer to Question 1

Changes in the income of any nation impact the level of exports and imports of all other nations trading with it. For example, in the United States aggregate demand increases if the income of our trading partners, such as Mexico and Canada, increases because some of the increase in Mexican and Canadian income translates into buying goods and services imported from the United States. As a result, U.S. aggregate demand increases, which means that U.S. real GDP increases. Thus increases in foreign income increase domestic real GDP while decreases in foreign income decrease domestic real GDP.

Answer to Question 2

The marginal propensity to consume is the change in consumption expenditure divided by the change in disposable income that brought it about. In this case, the marginal propensity to consume equals (0.5 trillion  1.0 trillion) = 0.50.