Suppose that the United States signs a new trade treaty that increases its exports to the rest of the world relative to imports. This policy will:

Question

Quizplus · Accepted Answer

An increase in exports relative to imports means that the country is selling more abroad than it is buying from abroad. This increase in net exports is a component of aggregate demand (AD = C + I + G + (X-M), where C is consumption, I is investment, G is government spending, X is exports, and M is imports). Therefore, an increase in exports relative to imports would increase aggregate demand, shifting the aggregate demand curve to the right.

Suppose That the United States Signs a New Trade Treaty