The net export effect works through international trade to:
A)increase the effectiveness of expansionary and contractionary fiscal policy.
B)decrease the effectiveness of expansionary and contractionary fiscal policy.
C)decrease the effectiveness of expansionary fiscal policy and increase the effectiveness of contractionary fiscal policy.
D)increase the effectiveness of expansionary fiscal policy and decrease the effectiveness of contractionary fiscal policy.

Question

Quizplus · Accepted Answer

The net export effect works through international trade to decrease the effectiveness of both expansionary and contractionary fiscal policy. When a country implements expansionary fiscal policy (increasing government spending or cutting taxes), it can lead to an increase in domestic demand for goods and services. This may result in an increase in imports, which means money is leaving the country rather than being spent domestically. Similarly, if a country implements contractionary fiscal policy (decreasing government spending or raising taxes), it can lead to a decrease in domestic demand for goods and services. This may result in a decrease in exports, which means money is not coming into the country as much as it used to. Thus, the net export effect works against both expansionary and contractionary fiscal policy.

The Net Export Effect Works Through International Trade To