Suppose policy makers want to reduce Y and keep NX constant. Which of the following policies would most likely achieve this?

Question

Quizplus · Accepted Answer

A decrease in government spending will reduce aggregate demand, leading to a decrease in Y. An increase in the real exchange rate will make domestic goods more expensive relative to foreign goods, leading to a decrease in NX. However, since the policy makers want to keep NX constant, the increase in the real exchange rate must be offset by other factors, such as an increase in foreign demand for domestic goods.

Suppose Policy Makers Want to Reduce Y and Keep NX