Q. Consider the following statements about the impact of foreign trade on aggregate demand in India:
1.Imports lead to a leakage from the circular flow of income, thus decreasing aggregate demand.
2.Exports act as an injection into the circular flow of income, increasing aggregate demand.
Which of the statements given above is/are correct?
Answer: C
Notes:
Explanation:
- When Indians buy imports, money goes out of the Indian economy — this is a leakage, reducing aggregate demand.
- When foreigners buy Indian exports, money comes into India — this is an injection, increasing aggregate demand.
Source: Economy (NCERT)
