In which case can we be sure real GDP rises in the short run?
A)foreign economies expand and taxes rise
B)foreign economies expand and taxes fall
C)foreign economies contract and taxes fall
D)None of the above are correct.

Question

Quizplus · Accepted Answer

When foreign economies expand, it increases demand for goods and services which in turn increases exports and boosts domestic production, leading to an increase in real GDP. When taxes fall, it increases consumers' disposable income, encouraging them to spend more, which leads to an increase in aggregate demand and a rise in real GDP in the short run. Therefore, if foreign economies expand and taxes fall, we can be sure that real GDP will rise in the short run.

In Which Case Can We Be Sure Real GDP Rises