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The rest of the world in the cross model
Imports Im(Y) depends positively on Y in the cross model
In the classical model, imports doesn't depend on Y. The discussion whether imports relies on Y or not is the same as for consumption. Though in the cross model, it's always presumed that when Y increases, consumption will increase by more than imports. This makes sense because C is generally larger than Y. For instance, Assume that C is 1000 whereas Im is 100 and that Y increases by 10%. If C and Im increase by 5% each, C will increase by 50 whereas Im will increases by only 5.
Net exports NX = X - Im will depend negatively on Y and rest of the world savings SR = Im - X relies positively on Y in cross model. If we want to be explicit about these dependences we write:
NX(Y) = X - Im(Y)
SR(Y) = Im(Y) - X
(a) Use this information to set up a diagram showing the firm''s total revenue and total cost schedules. In this diagram, show the points at which the firm is maximizing profits.
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