Which of the following events will tend to decrease net expo

Which of the following events will tend to decrease net exports?

increased incentives for foreigners to increase purchases of goods and services.

a decrease in the output or income of other nations that trade with the country

an increase in government purchases in the country

a decrease in real output or income in the country

Solution

Net exports = Exports - Imports

A decrease in net exports implies either a fall in exports or an increase in imports.

# Increased incentives for foreigners to increase purchases of goods and services => More feasability for foreigners to purchase our goods. Exports increase. Net exports increase.

# A decrease in the output or income of other nations that trade with the country => Low foreign income, low demand in foreign country, low demand for imports by them. Home country\'s exports fall (their imports = our exports). Net exports decline.

# An increase in government purchases in the country => An increase in production, employment, income and aggregate demand in the economy. But over the years, the spending that has been increased will be taken back in the form of increased taxes. Thus, net exports will tend to increase due to a fall in imports over the years.

# A decrease in real output or income in the country => Incomes decrease, demand for imports falls. Net exports increase.

Thus, the correct answer is option b. A decrease in the output or income of other nations that trade with the country.