Australian net export spending falls when the:

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BlackTom AI · Accepted Answer

The question asks: 'Australian net export spending falls when the:'

First, note that the provided data does not include a full list of answer options. The only usable piece is the single option labeled as 'c' which states: 'economic growth rate of Australian GDP is more rapid than the growth rate of GDP in other countries.'

Now, analyzing the idea behind why net export spending would fall: net exports (NX) are the difference between a country's exports and imports (NX = Exports − Imports). Net export spending tends to fall when imports rise faster than exports, or when demand for foreign goods increases relative to domestic goods, all else equal. If Australia experiences a faster growth rate than other countries, income and demand inside Australia typically rise more quickly. This tends to boost imports more than exports, because residents and firms buy more foreign goods and services as incomes expand, while exports do not rise as much in response to the relatively slower foreign growth. Hence, a faster domestic growth rate can reduce NX, causing net export spending to fall.

Why this option can be considered correct: it aligns with standard open-economy macro theory where stronger domestic growth leads to higher import demand, potentially widening the trade deficit and reducing net exports, all else equal.

Why this reasoning makes sense in context: the growth differential is a driving factor for relative demand for imports versus exports. If Australia grows faster than its trading partners, it tends to import more goods and services, while the external demand for Australian exports does not necessarily rise at the same pace, leading to a smaller NX.

Limitations to keep in mind: in real economies, many factors influence NX at the same time (exchange rate movements, terms of trade, global demand, commodity prices, trade policies). So while a faster domestic growth rate can contribute to a fall in net export spending, it is not an absolute determinant and the other factors may offset or amplify this effect.

If other options were provided, we would evaluate each against these macroeconomic relationships: NX responds to relative price effects (exchange rates), relative income effects (growth rates), and relative demand for domestic versus foreign goods. However, with only the single option given, the justification rests on the intuition that faster domestic growth raises imports more than exports, reducing net exports.

Australian net export spending falls when the:

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