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
Question 2
For this question, assume that the economy is initially operating at the natural level of output. An increase in unemployment benefits will cause
A) an increase in the real wage in the medium run.
B) a reduction in the real wage in the medium run.
C) no change in the real wage in the medium run.
D) ambiguous effects on the real wage in the medium run.
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