During the 2007–2009 recession, why did U.S. net exports increase?

• A. Foreign economies grew faster, increasing demand for U.S. exports.
• B. U.S. imports fell more sharply than exports due to decreased domestic demand.
• C. The U.S. dollar appreciated, making U.S. goods more expensive abroad.
• D. U.S. government increased tariffs on imported goods, reducing exports.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of net exports, which is defined as the value of a country's exports minus its imports, mathematically expressed as \(\text{Net Exports} = \text{Exports} - \text{Imports}\).
2. Step 2: Analyze the economic conditions during the 2007–2009 recession, focusing on how domestic demand in the U.S. decreased, leading to a reduction in imports because consumers and businesses bought fewer foreign goods.
3. Step 3: Recognize that while exports may have also declined due to global economic slowdown, the fall in imports was sharper because of the significant drop in U.S. domestic demand.
4. Step 4: Conclude that since net exports depend on the difference between exports and imports, a larger decrease in imports relative to exports results in an increase in net exports, even if both exports and imports are falling.
5. Step 5: Rule out other options by understanding that the U.S. dollar actually depreciated during the recession (not appreciated), foreign economies were also slowing down (not growing faster), and there was no significant increase in tariffs that would explain the change in net exports.