Assuming other factors being constant, a rise in exports results in a fall in aggregate demand.

Question

BlackTom AI · Accepted Answer

Consider the statement about exports and aggregate demand. 
Option 1: True. This would claim that a rise in exports causes aggregate demand to fall. In standard macroeconomic models, exports are a component of aggregate demand (AD = C + I + G + NX, where NX includes exports minus imports). A rise in exports increases NX, and thus increases AD, holding other factors constant. Therefore, this option misstates the relationship between exports and AD. 
Option 2: False. This aligns with the correct link: higher exports raise aggregate demand because foreign spending on domestically produced goods and services adds to the total demand in the economy, assuming other factors remain unchanged. The misconception in the original statement is the direction of the effect; many students confuse exports with leakage, but exports are actually an expenditure on domestic output, not a withdrawal from demand. 
In summary, exports contribute positively to aggregate demand, so the claim that a rise in exports leads to a fall in AD is incorrect.

BECO011 2025 Sample Final Exam for Practice

Assuming other factors being constant, a rise in exports results in a fall in aggregate demand.

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