INTERNATIONAL TRADE AND NATIONAL INCOME DETERMINATION

1. Effect of imports on the multiplier: Increased importation reduces the sizes of multiplier with a consequent reduction in the size of national income. Imports constitute a withdrawal from the circular flow of income.

Income is spent abroad and does not help in the raising the level of investment at home. Total income therefore falls.

2. Effect of exports on the national income: Exports constitute an injection into the circular flow of income. When goods are exported, income is derived from abroad. There is increased national income with the attendant multiplier effect. Increased exports increase the multiplier effects of income, while a decrease in exports will have a reverse effect.

EQUILIBRUM LEVEL OF INCOME

Equilibrium means situation in which economics forces have no tendency to change. The level of equilibrium always occurs where aggregate expenditure is equal aggregate national income.

There are various approaches depending on the fact that the economy is a closed or open or spend thrift or governed.

Two approaches as follow:

Income expenditure approach: This equilibrium in which National expenditure is equal to National Income or where aggregate supply is equal to aggregate demand.

Aggregate supply = Y= C+ S+T

Aggregate demand = E =C + I + G + (X– M)

Y = C + S + T = E = C + I + G (X – M)

Where this happens, desired expenditure is just sufficient to purchase the whole of national output and there is tendency to change.

Assignment (Post your answer and question title using the box below for evaluation and discussion):

1. Differentiate between change in supply and change in quantity supplied.
2. Given demand and supply equation

Qd = 12 – 2p; Qs = 2p + 4

1. Determine equilibrium price
2. Determine equilibrium quantity demanded at the price

• Determine equilibrium quantity supplied at a price

3. The supply situation for rice in country x over a period is a shown in the table below. use the table information in the table to answer the question that follow

2007. Calculate the co- efficient of price distributing of supply for rice between December, 2004 and January 2007.
2008. Is the supply of rice elastic? Given reason for your answer?
2009. State any three reason which may causes an increase in supply of rice