Question
Trade with foreign governments can also affect the circular flow of income. Exporting goods to other nations can inject money into an economy, as one government makes an income by selling goods to another. However, importing goods can result in a withdrawal, as money is paid out to another nation in exchange for products. The sum total of injections and withdrawals affects the overall income of a nation. When the sum of government spending (G), exports (X), and investments (I) exceeds the sum of taxes (T), imports (M), and savings (S), the national income increases. When the reverse is true, the national income decreases.
–“The Circular Flow of Income”
How might a trade deal that allows two nations to freely exchange goods affect the circular flow of income?
Neither country is likely to experience a change in its economy.
One country is more likely than the other to see its economy expand.
The economies of both countries will likely grow due to an income increase.
The economies of both countries will likely slow down due to an income decrease.
–“The Circular Flow of Income”
How might a trade deal that allows two nations to freely exchange goods affect the circular flow of income?
Neither country is likely to experience a change in its economy.
One country is more likely than the other to see its economy expand.
The economies of both countries will likely grow due to an income increase.
The economies of both countries will likely slow down due to an income decrease.
Answers
GPT-4o mini
A trade deal that allows two nations to freely exchange goods is likely to lead to increased economic activity for both countries. When countries can trade without restrictions, they typically experience a rise in exports and imports. This can result in injections of money into each country’s economy through increased export sales, while also allowing for access to a wider variety of goods and services.
As a result, the correct answer would be:
**The economies of both countries will likely grow due to an income increase.**
This growth occurs because the increased trade can create efficiencies, lower prices, expand markets, and ultimately lead to higher levels of national income as the total injections (exports and investments) grow in relation to withdrawals (imports and savings).
As a result, the correct answer would be:
**The economies of both countries will likely grow due to an income increase.**
This growth occurs because the increased trade can create efficiencies, lower prices, expand markets, and ultimately lead to higher levels of national income as the total injections (exports and investments) grow in relation to withdrawals (imports and savings).