If net exports increase by $350 billion at every level of income, the net export line will
A)shift upward by $350 billion
B)shift downward by $350 billion
C)shift upward by more than $350 billion because of the multiplier effect
D)shift upward by less than $350 billion
E)shift downward by more than $350 billion because of the multiplier effect

Question

Quizplus · Accepted Answer

An increase in net exports means that at every level of income, the economy is selling more goods and services to the rest of the world than it is buying from them. This leads to an increase in the net export component of aggregate demand, which is shown graphically as an upward shift of the net export line. The size of the shift is equal to the initial change in net exports, which in this case is $350 billion. There is no multiplier effect in this question, so choices C and E are incorrect. And since the increase in net exports is exactly $350 billion, the shift cannot be less than $350 billion, so choice D is also incorrect.

If Net Exports Increase by $350 Billion at Every Level