Answer to Question #134574 in Macroeconomics for David Ngobeni

Question

Which of the following is correct about exports in the Keynesian model?
1.increases the multiplier
2.increase due to a depreciation in the south African rand against it's major trading partners.
3.increase as domestic interest rates decreases.
4.increase when the level of domestic income increases.

Answer 1

Exports in the Keynesian Model

3. Increase as Domestic Interest Rates Decrease

Exports in the Keynesian model tend to increase as the domestic interest rates of a country decrease. Exports are goods produced in the domestic economy but sold overseas or abroad. In the Keynesian model, expenditures on export s tend to add to aggregate demand, which is defined as spending on domestic goods and services. Based on this background, a weaker domestic currency due to lower interest rates in the domestic economy stimulates exports in the Keynesian model. Importing countries find exports of a country with decreased interest rates relatively cheaper than those of a country with increased interest rates, which are associated with strong currencies. Importers tend to spend more on exports of a country that is characterized by low-interest rates regimes. Due to lower interest rates, which lead to lower exchange rates and a weaker domestic currency, exports in the Keynesian model tend to increase as domestic interest rates fall.