Suppose incomes rise in foreign countries. This will:Multiple choice question.increase U.S. exports, but decrease net exports and aggregate demand.increase U.S. exports, net exports, and aggregate demand.increase U.S. exports and net exports, but decrease aggregate demand.decrease U.S. exports, net exports, and aggregate demand.
Question
Suppose incomes rise in foreign countries. This will:Multiple choice question.increase U.S. exports, but decrease net exports and aggregate demand.increase U.S. exports, net exports, and aggregate demand.increase U.S. exports and net exports, but decrease aggregate demand.decrease U.S. exports, net exports, and aggregate demand.
Solution
The correct answer is: increase U.S. exports, net exports, and aggregate demand.
Here's why:
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If incomes rise in foreign countries, people in those countries will have more money to spend.
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Some of that extra spending will go towards goods and services from the U.S., which will increase U.S. exports.
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An increase in U.S. exports means an increase in net exports (since net exports = exports - imports).
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Finally, an increase in net exports will increase aggregate demand, because aggregate demand is the total demand for all final goods and services in an economy, which includes net exports.
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