Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would
A)rise which by itself would increase aggregate demand.
B)rise which by itself would decrease aggregate demand.
C)fall which by itself would increase aggregate demand.
D)fall which by itself would decrease aggregate demand.

Question

Quizplus · Accepted Answer

If foreigners lose confidence in U.S. financial institutions, they may reduce their investment in U.S. bonds, leading to a depreciation of the U.S. dollar. This makes U.S. goods cheaper for foreigners, potentially increasing U.S. net exports and thereby increasing aggregate demand.

Suppose That Foreigners Had Reduced Confidence in U