Fiscal and trade policies shifting aggregate demand rightward

Steps:

• Recall AD components: AD = C + I + G + (X - M); real output rises with rightward AD shift in short-run AS model.
• Evaluate each option's net impact on AD or AS from the changes described.
• Options with ambiguous or negative net effects do not guarantee output rise.
• Select option with clear positive AD shift leading to higher equilibrium output.

Why C is correct:

• Fall in import expenditure (M) raises net exports (X - M), increasing AD per the expenditure approach formula, shifting AD right and raising real output.

Why the others are wrong:

• A: Tax cut boosts consumption (C), but government spending cut reduces G; net AD effect ambiguous.
• B: Tax rise cuts C (leftward AD); raw material cost rise shifts short-run AS left; both lower output.
• D: Government spending rise boosts G (rightward AD), but export fall cuts X; net AD effect ambiguous.

Final answer: C