Assuming other factors being constant, a fall in imports results in a fall in aggregate demand.

Question

BlackTom AI · Accepted Answer

In considering the impact of a fall in imports on aggregate demand (AD) with other factors held constant, we should start from the basic AD identity: AD = C + I + G + (X - M), where X is exports and M is imports.

Option 1: True — 'a fall in imports results in a fall in aggregate demand.' This claim would imply that reducing imports lowers AD. However, when imports fall (M decreases) while other components remain unchanged, the term (X - M) becomes larger because you're subtracting a smaller number for M. An increase in (X - M) adds to AD, not subtracts from it. Therefore, this statement is inconsistent with the AD equation, and is misleading as a general claim. The intuition someone might have is that imports are spending on foreign goods, but the formula shows the net export component improves as imports fall, boosting AD.

Option 2: False — 'a fall in imports results in a fall in aggregate demand.' This is incorrect for the same reason: with M falling and all else constant, NX = X - M rises, which increases AD via the net export component. The change in imports directly affects the NX portion, not through C, I, or G in this simple ceteris paribus setup. The error here stems from treating imports in isolation as a purely negative component of demand, ignoring the accounting identity that a lower import bill improves the net export balance and thus AD.

Summary perspective: Since AD moves with the net export term, a decrease in imports tends to raise aggregate demand when other factors stay the same. The statement in Option 1 incorrectly ties a fall in imports to a fall in AD, making it false in this framework.

Assuming other factors being constant, a fall in imports results in a fall in aggregate demand.

View Explanation

Log in for full answers

Similar Questions

In the long-run persistent increases in aggregate demand will:

The downward slope of the aggregate-demand curve shows that:

Assuming other factors being constant, a rise in exports results in a fall in aggregate demand.

In the short run, a decrease in personal income taxes will result in _________________.

Suppose 𝑎 ¯ 𝑐 = 0.75 , 𝑎 ¯ 𝑖 = 0.18 , 𝑎 ¯ 𝑔 = 0.18 , 𝑎 ¯ 𝑒 𝑥 = 0.13 , and 𝑎 ¯ 𝑖 𝑚 = 0.17 . Aggregate demand is 𝑎 ¯ = ______.

Suppose the economy is initially in long-run equilibrium. A decrease in aggregate demand will

Using the aggregate demand-aggregate supply model, predict what happens in the short run when the consumer confidence index falls as consumers become pessimistic about their economic prospects.

More Practical Tools for International Students

Homework AI Solver

Stylized Writing Assistant

Plagiarism Checker Assistant

Citation Assistant

In-Class Translation Assistant

Class Notes Assistant

Quiz Search Assistant

Past Exam Questions by School

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler