2 Suppose there is a one dollar increase in government expenditure in a large co

Question

2 Suppose there is a one dollar increase in government expenditure in a large country and a one dollar increase in that (a) the relative eftect on national income of the country country than in the large country (b) the relative effect government expenditure in a small country It is then true ountry is greater in the small country than in the large country; (C) the entry the trade balance of the country is greater in the large country than in the (d) none of the above is greater in the small on the trade balance of the relative effect on small country

Explanation / Answer

We cannot really say what happens when there is a $1 increase in the government expenditure in small country or a large country just on the basis of this information. However we know that when a country is large it is able to influence the World Trade price of many goods and services. This indicates that the trade balance effect would definitely be altered and in favour of the large country than in the favore of small country.

Therefore the correct choice is option C.

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