Assume that a small open economy gets involved in a global war, in which its government purchases increase and the rest of the world's government purchases also increase. Then, for the small country, net exports:
A) will certainly decrease.
B) will certainly increase.
C) may increase or decrease.
D) will remain the same.

Question

Quizplus · Accepted Answer

If the government purchases in the small country and the rest of the world increase at the same time, there could be changes in both the demand for and supply of goods and financial assets. This can lead to unpredictable changes in exchange rates, interest rates, and exports. Therefore, net exports may increase or decrease; it's uncertain without more information.

Assume That a Small Open Economy Gets Involved in a Global