Consider the AE function in a simple macro model with government and foreign trade.It is generally assumed that as real national income
A)increases,exports will decrease.
B)increases,net exports will decrease.
C)increases,imports will decrease.
D)decreases,net exports will decrease.
E)decreases,exports will decrease.

Question

Quizplus · Accepted Answer

According to the AE function, as real national income increases, consumption, government expenditure, and investment also increase. This increases the demand for goods and services, leading to an increase in imports. However, exports remain constant as they are driven by factors such as international demand and exchange rates. Therefore, the net exports (exports minus imports) will decrease as real national income increases.

Consider the AE Function in a Simple Macro Model with Government