The correct matching is: Domestic demand for goods includes expenditure by domestic residents on both domestic and imported goods, represented as C + I + G + M. (1 → c) Demand for domestic goods includes expenditure on domestically produced goods, including exports, represented as C + I + G + X. (2 → b) Consumers and firms in an open economy can purchase goods produced both domestically and abroad. (3 → a) A closed economy has no trade or financial linkages with the rest of the world. (4 → d) Therefore, the correct matching is: 1 → c 2 → b 3 → a 4 → d Hence, Option B is correct.

The national income identity can be written as: [ Y + M = C + I + G + X ] Here: Y + M represents the total supply available in the economy (domestic production plus imports). C + I + G + X represents the total demand for goods and services. The reason correctly explains why imports are added to supply and exports are added to demand. Thus, the identity reflects the equality of total supply and total demand in an open economy. Therefore, both the Assertion and the Reason are true, and the Reason correctly explains the Assertion.

Evaluate each statement: Statement 1 is correct because the equation [ Y = C + I + G + X - M ] represents the equilibrium national income identity for an open economy. Statement 2 is incorrect because Net Exports (X − M) can be positive (trade surplus), negative (trade deficit), or zero. It is not always zero. Statement 3 is correct because imports are included in consumption, investment, and government expenditure but represent spending on foreign-produced goods. Therefore, they are deducted to measure only domestic production. Hence, Statements 1 and 3 are correct.

Net Exports (NX) measure the difference between exports and imports: NX = X − M When exports (X) are greater than imports (M), the value of NX becomes positive. This indicates that the country is selling more goods and services abroad than it is purchasing from other countries, creating a trade surplus. Therefore, Option A is correct. Option A correctly identifies a trade surplus. Option B represents a trade deficit. Option C represents balanced trade. Option D is unrelated to the definition of net exports.

The import function is: M = 60 + 0.06Y Here: 60 = Autonomous imports (constant) 0.06 = Marginal propensity to import (m) When income increases by 1000, Change in Imports = m × Change in Income = 0.06 × 1000 = 60 The autonomous component does not change because it is fixed. Therefore, the increase in total imports is 60, making Option A correct.

The marginal propensity to import (m) measures the proportion of each additional unit of income that is spent on imports. A high value of m indicates that consumers spend a significant share of every additional rupee of income on foreign goods and services. This increases leakages from the domestic economy and reduces the size of the open economy multiplier. Therefore, Option B is correct. Option A is incorrect because a high m indicates greater openness to trade. Option C is incorrect because m measures imports, not exports. Option D is incorrect because a higher m reduces, rather than increases, the multiplier. The correct matching is: Higher real exchange rate (R) makes domestic goods relatively cheaper for foreigners, increasing exports. (1 → d) Increase in foreign income (Yf) raises purchasing power abroad, leading to higher foreign demand and increased exports. (2 → c) Lower real exchange rate (R) makes domestic goods relatively more expensive for foreigners, reducing exports. (3 → b) Decrease in foreign income (Yf) lowers foreign purchasing power, causing lower foreign demand and reduced exports. (4 → a) Therefore, the correct matching is: 1 → d 2 → c 3 → b 4 → a Hence, Option D is correct.

The correct matching is:

• Higher real exchange rate (R) makes domestic goods relatively cheaper for foreigners, increasing exports. (1 → d)
• Increase in foreign income (Yf) raises purchasing power abroad, leading to higher foreign demand and increased exports. (2 → c)
• Lower real exchange rate (R) makes domestic goods relatively more expensive for foreigners, reducing exports. (3 → b)
• Decrease in foreign income (Yf) lowers foreign purchasing power, causing lower foreign demand and reduced exports. (4 → a)

Therefore, the correct matching is:

• 1 → d
• 2 → c
• 3 → b
• 4 → a

Hence, Option D is correct.

A higher real exchange rate (R) increases the relative price of foreign goods compared to domestic goods. As imported goods become more expensive, domestic consumers reduce their purchases of imports and substitute domestically produced goods instead. Consequently, the quantity of imports decreases. Therefore, Option D is correct. Option A is incorrect because imports do not expand when foreign goods become more expensive. Option B is incorrect because the change affects import demand rather than merely stabilizing it. Option C is incorrect because higher import prices reduce import demand.

The equilibrium income is derived systematically as follows: Step 1: Write the basic open economy income identity: Y = C̄ + c(Y − T) + Ī + Ḡ + X̄ − M Step 2: Substitute the import function: M = M̄ + mY Step 3: Collect all income terms on one side: (1 − c + m)Y = Ā where Ā represents autonomous expenditure. Step 4: Divide both sides by (1 − c + m) to obtain: Y = Ā / (1 − c + m)* Therefore, the correct sequence is: 3 → 1 → 2 → 4 Hence, Option A is correct.

In the open economy equilibrium equation, [ Y=\frac{\bar{A}}{(1-c+m)} ] Ā represents the autonomous expenditure, which includes all expenditure components that do not depend on current income. It consists of: C̄ = Autonomous consumption Ī = Autonomous investment Ḡ = Government expenditure X̄ = Autonomous exports −M̄ = Autonomous imports (subtracted because imports are leakages) Thus, [ \bar{A}=\bar{C}+\bar{I}+\bar{G}+\bar{X}-\bar{M} ] Therefore, Option C is correct.

Evaluate each statement: 1. Correct. The open economy multiplier is given by: [ k=\frac{1}{1-c+m} ] 2. Correct. Since imports create an additional leakage, the denominator (1 − c + m) is larger than in the closed economy multiplier (\frac{1}{1-c}). Hence, the multiplier is smaller. 3. Incorrect. An increase in the marginal propensity to import (m) increases leakages, enlarges the denominator, and therefore reduces the multiplier. Thus, only Statements 1 and 2 are correct.

The Assertion is true because the open economy multiplier is: [ k=\frac{1}{1-c+m} ] The additional term m (marginal propensity to import) increases the denominator, reducing the multiplier compared to the closed economy. The Reason is also true because when income rises, a part of the additional income is spent on imported goods rather than domestically produced goods. This reduces the induced demand for domestic output, weakening the multiplier process. Thus, the reason correctly explains why the autonomous expenditure multiplier is smaller in an open economy. Therefore, Option A is correct.

The open economy multiplier is: [ k=\frac{1}{1-c+m} ] Given: c = 0.6 m = 0.1 Substituting the values: [ k=\frac{1}{1-0.6+0.1} =\frac{1}{0.5} =2 ] Hence, the value of the open economy multiplier is 2.0. Therefore, Option B is correct.

The correct formulas are: Closed economy multiplier = 1 / (1 − c) (1 → c) Open economy multiplier = 1 / (1 − c + m) (2 → b) Denominator of the closed multiplier = (1 − c) (3 → d) Denominator of the open multiplier = (1 − c + m) (4 → a) Therefore, the correct matching is: 1 → c 2 → b 3 → d 4 → a Hence, Option C is correct.

The relationship between autonomous exports and equilibrium income is: [ \Delta Y = k \times \Delta \bar{X} ] where: k = Open economy multiplier ΔX̄ = Autonomous increase in exports Given: Multiplier (k) = 2 ΔX̄ = 100 Therefore, [ \Delta Y = 2 \times 100 = 200 ] Thus, equilibrium income increases by 200 units. Hence, Option D is correct.

An autonomous increase in imports represents an increase in expenditure on foreign goods. The logical sequence is: Step 1: Autonomous import demand rises. Step 2: Domestic aggregate demand falls because spending shifts from domestic to foreign goods. Step 3: The multiplier process amplifies the initial fall in domestic demand. Step 4: Equilibrium income declines. Thus, the correct order is: 3 → 4 → 1 → 2 Hence, Option A is correct.

Aggregate demand in an open economy is given by: [ AD = C + I + G + (X - M) ] where NX = X − M. An increase in Net Exports (NX) raises aggregate demand because exports increase demand for domestically produced goods, while a decrease in NX lowers aggregate demand due to higher imports or lower exports. Thus, changes in the trade balance directly shift the aggregate demand curve and influence equilibrium income and output. Therefore, Option A is correct.

Evaluate each statement: 1. Increase in autonomous exports (X̄) → Correct. Exports are an autonomous component of aggregate demand. An increase in exports raises demand for domestically produced goods and shifts aggregate demand upward. 2. Decrease in autonomous imports (M̄) → Correct. Lower autonomous imports reduce leakages from the economy, increasing net exports and aggregate demand. 3. Decrease in government spending (Ḡ) → Incorrect. Government expenditure is a component of aggregate demand. A reduction in government spending shifts aggregate demand downward, not upward. Therefore, only Statements 1 and 2 are correct.

The passage states that exports depend positively on foreign income (Yf). When foreign income rises, consumers and firms in foreign countries have greater purchasing power and demand more imported goods, including goods exported by the domestic economy. As exports increase while other factors remain unchanged, Net Exports (NX = X − M) increase. This improves the trade balance and may result in a trade surplus if exports exceed imports. Therefore, Option C is correct.

According to the passage, imports depend positively on domestic income (Y). As domestic income rises, households and firms purchase more goods and services, including imported goods. If exports do not increase simultaneously, imports will grow faster than exports, causing Net Exports (NX = X − M) to decline. When imports exceed exports, the economy experiences a trade deficit. Therefore, Option D is correct.