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Which one of the following will cause a shift of the NX curve to the right?

Economics

ScanSolve AI Answer

Answer

C

Step-by-step solution

6 steps
  1. The NX curve shows net exports (NX = Exports −- Imports) as a function of income (Y).

    It slopes downward because higher Y increases imports, reducing NX:

    NX=X‾−mYNX = \overline{X} - mY

    where X‾\overline{X} is autonomous exports and mm is the marginal propensity to import (m>0m > 0).

  2. A rightward shift of the NX curve means higher NX at every Y level (e.g., due to higher autonomous exports).

  3. Option A -- An increase in the level of output and income

    This raises Y, causing a movement along the NX curve to a lower NX (higher imports). No shift.

  4. Option B -- An increase in government spending

    This raises Y (via multiplier), causing a movement along the NX curve to lower NX. No shift.

  5. Option C -- An increase in foreign demand for domestic goods

    This raises autonomous exports (X‾↑\overline{X} \uparrow), increasing NX at every Y:

    NX′=(X‾+ΔX)−mYNX' = (\overline{X} + \Delta X) - mY

    The NX curve shifts right.

  6. Option D -- An increase in imports

    Autonomous imports rise or m↑m \uparrow, decreasing NX at every Y. The NX curve shifts left.

    The answer is C.
    C

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