When determining the AE function for an open economy with government, it is generally assumed that as real national income
A)increases, imports will decrease.
B)decreases, exports will decrease.
C)decreases, net exports will decrease.
D)increases, exports will decrease.
E)increases, net exports will decrease.

Question

Quizplus · Accepted Answer

As real national income increases, the demand for imports typically increases as well, leading to a decrease in net exports (exports minus imports). Therefore, as real national income increases, net exports will tend to decrease.

When Determining the AE Function for an Open Economy with Government