In a four-sector open economy, national income equilibrium is maintained when total leakag… — JAMB UTME

In a four-sector open economy, national income equilibrium is maintained when total leakages (withdrawals) equal total injections. If savings ( $S$ ) is \ $150 million, taxation ($ T $) is \$100 million, imports ($ M $) are \$80 million, investment ($ I $) is \$180 million, and government expenditure ($ G $) is \$110 million, what is the required value of exports ($ X$) to maintain equilibrium?

\$40 millionAnswer
B
\$120 million
C
\$200 million
D
\$330 million

Answer

\$40 million is required for exports to achieve equilibrium in the circular flow of income.

The correct answer is \

40 million. In a four-sector open economy, equilibrium requires total leakages (

S + T + M

) to equal total injections (

I + G + X

). Summing leakages yields

150 + 100 + 80 = 330

million. Known injections sum to

180 + 110 = 290

million. To reach equilibrium, exports (

) must account for the difference:

330 - 290 = 40$ million.

Step-by-Step Solution

Identify the equilibrium condition for a four-sector circular flow of income

Total Leakages (

W

) = Total Injections (

J

)

Equilibrium occurs where withdrawals from the circular flow equal additions to it.

Calculate total leakages (

W = S + T + M

)

W = 150 + 100 + 80 = \$330\text{ million}

Savings (

S

), Taxation (

T

), and Imports (

M

) represent money flowing out of the domestic circular flow.

Set up the injection equation (

J = I + G + X

) and solve for

X

330 = 180 + 110 + X \implies 330 = 290 + X \implies X = 40\text{ million}

Investment (

I

), Government Spending (

G

), and Exports (

X

) are injections, so

X

must balance the remaining leakage shortfall.

Key Concept

Four-Sector Circular Flow Equilibrium Identity (

S + T + M = I + G + X

)

Estimated Time:1m 30s

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