To offset the effect of a steep fall in net exports on the economy, the government might:
A)increase government purchases.
B)decrease government purchases.
C)increase taxes.
D)none of the above.

Question

To offset the effect of a steep fall in net exports on the economy, the government might:
A)​increase government purchases.
B)​decrease government purchases.
C)​increase taxes.
D)​none of the above.

Quizplus · Accepted Answer

A decrease in net exports can lead to a decrease in aggregate demand, and to offset this effect, the government can increase its purchases to increase aggregate demand and stimulate the economy. Decreasing government purchases or increasing taxes could further decrease aggregate demand and worsen the situation. Therefore, the best choice is to increase government purchases.

To Offset the Effect of a Steep Fall in Net