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

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

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the components of net exports, which is defined as the value of exports minus the value of imports, i.e., \(\text{Net Exports} = \text{Exports} - \text{Imports}\).
2. Step 2: Analyze the economic conditions during the 2007–2009 recession, focusing on how domestic demand in the U.S. decreased significantly, leading to a reduction in imports because consumers and businesses bought fewer foreign goods.
3. Step 3: Recognize that exports did not fall as sharply as imports because foreign demand for U.S. goods remained relatively more stable or declined less, which means the net exports could increase if imports fall faster than exports.
4. Step 4: Evaluate the impact of exchange rates and tariffs: an appreciating U.S. dollar would typically make imports cheaper and exports more expensive, which would reduce net exports, so this does not explain the increase in net exports during the recession.
5. Step 5: Conclude that the primary reason for the increase in U.S. net exports during the recession was the sharper decline in imports relative to exports, driven by decreased domestic demand rather than changes in tariffs or foreign economic growth.