Suppose the fictional country of Wallstona is under pressure from its trading pa

Question

Suppose the fictional country of Wallstona is under pressure from its trading partners to decrease its trade surplus.

Which of the following would help decrease Wallstona's trade surplus? Check all that apply.

a) Encouraging the economy of Wallstona to grow more quickly than the economies of Wallstona's trading partners

b) Increasing government expenditure while holding taxes, saving, and investment constant

True or False: If the government of Wallstona lowers its trade surplus by repealing tariffs, Wallstona can expect an increase in imports but no changes in either the government deficit or the gap between saving and investment.

a) true

b) false

Explanation / Answer

1. b) Increasing government expenditure while holding taxes, saving, and investment constant.

Government imports more goods by increasing its spending as a result imports increases keeping export constant. As a result, trade surplus decreases.

2. b) False because increase in tariff increases the price of imported goods. Increase in the price of imported goods decreases its demand in the market as a result, imports will nott increase.

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