In addition to government purchases or changes in taxes, demand shocks in the economy can increase or decrease GDP, leading to a fall or rise in the trade balance. Which of the following would NOT represent a demand shock?
a. a change in household wealth leading to a rise in consumption expenditures.
b. a rise in inflation.
c. a change in the marginal propensity to import, causing imports to rise.
d. an increase in technology, causing investment spending to rise.
Ans: b. a rise in inflation.
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