Multiple Choice
Which of the following would shift the long-run aggregate supply (LRAS) curve but not the short-run aggregate supply (SRAS) curve?
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1. Introduction to Macroeconomics
Introduction to Economics
Multiple Choice
If a country has y > c + i + g, then it has:
A
a budget deficit
B
a trade surplus
C
a trade deficit
D
no net exports
Verified step by step guidance1
Step 1: Understand the variables in the equation. Here, \( y \) represents the country's total output or income (GDP), \( c \) is consumption, \( i \) is investment, and \( g \) is government spending.
Step 2: Recall the national income identity for an open economy: \( y = c + i + g + nx \), where \( nx \) stands for net exports (exports minus imports).
Step 3: Rearrange the identity to isolate net exports: \( nx = y - (c + i + g) \). This shows that net exports equal total output minus domestic spending (consumption, investment, and government spending).
Step 4: Analyze the inequality \( y > c + i + g \). This means \( y - (c + i + g) > 0 \), so net exports \( nx \) are positive.
Step 5: Since net exports are positive, the country exports more than it imports, which defines a trade surplus.
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