Suppose policy makers want to increase Y and increase NX.Which of the following policies would most likely achieve this?

Question

Quizplus · Accepted Answer

A real depreciation (which means making the currency of the country cheaper relative to foreign currencies) would make exports cheaper and imports more expensive. This would increase net exports (NX) and also increase aggregate demand, leading to an increase in output (Y). Option A may increase output but may not affect the net exports. Option C may increase net exports but may have an uncertain effect on output. Option D, an increase in the real exchange rate, would make exports more expensive and imports cheaper and would work against the policy objective of increasing net exports.

Suppose Policy Makers Want to Increase Y and Increase NX