How are net exports and the government sector balance linked?
What will be an ideal response?
Net exports is the value of exports of goods and services minus the value of imports of goods and services. Net exports is equal to the sum of government sector surplus or deficit plus the private sector surplus or deficit. The government sector balance is equal to net taxes minus government expenditure on goods and services. If the government sector balance is negative, then the government sector has a deficit, that is, a budget deficit. Because net exports equals the sum of the government sector balance plus private sector balance, if the government budget deficit increases and the private sector balance does not change, the value of net exports becomes more negative.
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a. True b. False
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