Which of the following factors is most likely to stimulate an increase in net export demand?

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BlackTom AI · Accepted Answer

Question restatement: Which of the following factors is most likely to stimulate an increase in net export demand?

Option a: 'A significant improvement in the quality and competitiveness of domestic goods, driven by innovation and efficiency.' This option aligns with the idea that higher quality and lower relative costs make domestic goods more attractive to foreign buyers, boosting exports and thus net export demand. It also can improve price competitiveness, leading to greater demand for exports.

Option b: 'A severe recession experienced by a major trading partner.' A recession in a key partner typically reduces demand for imports from domestic producers, lowering export demand. It would likely dampen net exports rather than stimulate them, especially if the partner cannot compete due to weaker income levels.

Option c: 'A substantial appreciation of the domestic currency.' A stronger domestic currency makes exports more expensive for foreign buyers and imports cheaper for domestic residents. This tends to reduce net export demand because demand for exported goods falls and imports rise, squeezing net exports downward.

Option d: 'An increase in trade barriers, such as tariffs, decreases access to foreign markets.' Tariffs and higher barriers reduce foreign demand for domestic goods and can provoke retaliation or make imports more expensive, but the immediate effect tends to reduce net export demand by limiting access to foreign markets and possibly inviting foreign retaliation. This is not supportive of higher net exports.

Synthesis: The factor most likely to raise net export demand is the improvement in the quality and competitiveness of domestic goods (option a), since it directly enhances foreign demand for exports by making domestic goods more appealing abroad. The other options describe scenarios that typically depress net export demand rather than stimulate it, such as a trading partner recession, currency appreciation, or higher trade barriers.

MUF0062 Economics Unit 2 - Semester 2, 2025

Which of the following factors is most likely to stimulate an increase in net export demand?

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