This exercise gives students the opportunity to consider by use of the circular flow diagram the implications of increased spending on domestic goods by residents of foreign nations. Students should be able to trace the impact of increased spending in the foreign sector to the other sectors of the economy. You may want to have them consider the question, "Suppose all countries starting buying US made automobiles in increasing numbers?" rather than increased spending in general. While individual team answers will vary, the exercise is intended to generate discussion and understanding of the circular flow diagram.

Each student pairs up with his or her neighbor. Each pair uses the circular flow diagram to explain the effect of an increase in spending on U.S. goods by residents of foreign nations. Students should think about the following questions:

How would the increased spending increase the flow of goods and services and money between the sectors?

How would the increased spending be paid for?

How would that affect income and output?

After considering the questions, student pairs should share ideas.