In an open economy, an increase in (G − T) will
A)decrease (X − IM).
B)increase (X − IM).
C)leave (X − IM) unchanged.
D)have an unpredictable effect on (X − IM).

Question

Quizplus · Accepted Answer

An increase in government spending (G) relative to taxes (T) typically leads to a higher domestic demand, which can increase imports (IM) without necessarily affecting exports (X), thus decreasing the net exports (X - IM).

In an Open Economy, an Increase in (G − T)