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How does an increase in domestic spending affect the net exports of an open economy?
  • a)
    Net exports increase.
  • b)
    Net exports decrease.
  • c)
    Net exports remain unchanged.
  • d)
    Net exports are not affected by domestic spending.
Correct answer is option 'B'. Can you explain this answer?
Most Upvoted Answer
How does an increase in domestic spending affect the net exports of an...
An increase in domestic spending raises imports, which reduces net exports. Although domestic spending contributes to higher aggregate demand, a portion of the spending is directed towards imports, causing a decrease in net exports.
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How does an increase in domestic spending affect the net exports of an open economy?a)Net exports increase.b)Net exports decrease.c)Net exports remain unchanged.d)Net exports are not affected by domestic spending.Correct answer is option 'B'. Can you explain this answer?
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