If exports are $10 trillion and imports are $10.5 trillion, adding net exports to the aggregate expenditures (AE) line that includes consumption, investment, and government spending will cause the AE line to:

Question

Quizplus · Accepted Answer

Net exports represent the difference between exports and imports. If imports are greater than exports, as in this case, then net exports will be negative. Adding net exports to the aggregate expenditures (AE) line will cause the line to shift down by the amount of the net exports, which is $0.5 trillion in this case. The new line will be parallel to the original line because net exports only affect the level of output, not the slope of the AE line. Therefore, the correct answer is D: shift down by $0.5 trillion and the new line will be parallel to the original line.

If Exports Are $10 Trillion and Imports Are $10