Question

If there is no government and no foreign trade, then:

• A. \(G = T = M = X >1\)
• B. G = T = M = X = 1
• C. G = T = M = X = 0
• D. \(G = T = M = X <1\)

Answer 1

The Correct Option is C

In the absence of government and foreign trade, government spending (G), taxes (T), imports (M), and exports (X) all equal zero.

Answer 2

In a simplified economic model where there is no government and no foreign trade, the key macroeconomic variables such as government spending (G), taxes (T), imports (M), and exports (X) all equal zero.

Without government intervention, there is no public spending or taxation in the economy. As a result, government spending (G) and taxes (T) do not contribute to the economy’s overall activity or income distribution. Similarly, in the absence of foreign trade, imports (M) and exports (X) do not affect the economy, as there is no cross-border exchange of goods and services.

This scenario represents a closed economy, where all production, consumption, and income generation occur domestically. The economic activities are solely driven by households and firms interacting in the goods and services market, and the factors of production (labor, capital, land) remain entirely within the economy’s borders.