Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of...
Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of the following policies would most likely achieve this?
A. an increase in government spending
B. a real depreciation
C.an increase in government spending and a decrease in the real exchange rate
D. a decrease in the real exchange rate and a tax increase
Homework Answers
The correct answer is : (D) a decrease in the real exchange rate and a tax increase.
A decrease in the real exchange rate will increase net exports. Income from exports would ideally increase aggregate demand but an increased tax would keep the aggregate demand constant. Hence, net exports will increase and output will remain constant.
A) is false. More spending would increase output but also imports, reducing net exports.
B) is false. A real depreciation improves the real exchange rate, makes exports more competitive and imports more expensive. In consequence, net exports increase, fostering aggregate demand and, thus, economic growth.
C) false. If the exchange rate decreases it means that net exports will increase. But an increase in government spending will increase aggregate demand and thus increase output level.
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Suppose policy makers want to increase net exports (NX) and keep
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Please give a detailed
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f contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand? Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports. Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports. Interest rates would increase, leading to...
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Please give a detailed
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