Economy Small
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How do increase in personal income taxes increase net exports for a small open economy?
I had a MC question, where the answer was a.):
If the government of a small open economy increases personal income taxes, that country's:
a.) net exports increase. <---
b.) investment increases.
c.) equilibrium real exchange rate rises.
d.) consumption rises.
I'm pretty sure an increase in net exports can only occur with either an increase in savings or a decrease in investment. How does an increase in personal income taxes do any/both of these?
I don't see how it would necessarily. I can see how it might affect imports by reducing the ability of the populace to consume imported items.
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