The Relationship Between National Income and Export and Import Expenditures in the Income-Expenditure Model

Understanding the Relationship in the Income-Expenditure Model

The direct answer is: Export expenditure is a horizontal line while import expenditure is an upward-sloping line. In contrast, import expenditure is shown as an upward-sloping line, indicating that it tends to increase as national income increases.

Explanation of the Relationship

In the income-expenditure model, which is a basic macroeconomic framework, the relationship between national income and export and import expenditures is represented by the aggregate expenditure line.

Export expenditure represents the spending on goods and services by foreign countries, while import expenditure represents the spending on goods and services produced in foreign countries and consumed domestically. These expenditures have different relationships with national income.

Export expenditure is considered a horizontal line because it is assumed that exports do not depend directly on national income within the domestic economy. The level of exports is influenced by factors such as exchange rates, foreign demand, and trade policies, rather than domestic income.

On the other hand, import expenditure is an upward-sloping line. As national income increases, the ability and willingness to purchase imported goods and services also tend to increase. Higher income levels often lead to greater consumer spending, which can include purchasing imported goods.

Therefore, the statement "Export expenditure is a horizontal line while import expenditure is an upward-sloping line" accurately reflects the relationship between national income and export and import expenditures in the income-expenditure model.

In the income-expenditure model, export expenditure is represented by a horizontal line, indicating that it does not vary directly with national income. In contrast, import expenditure is shown as an upward-sloping line, indicating that it tends to increase as national income increases.