Download Why is this true? In an open economy, net exports being negative

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Why is this true?
In an open economy, net exports being negative causes fiscal stimulus to be weaker for the following reason. Recall that net exports being negative
means that the country is importing more than it is exporting. In this situation, the government spending multiplier will be smaller because some of the
government spending will "escape" to pay for the imports rather than for domestic output. In today’s more globalized economy, traditional fiscal countercyclical policy has been made more difficult as the ratio of imports/GDP (one measurement of globalization) has increased.
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Given ZIRP, when prices rise ( positive inflation rate), the real interest rate falls, and thus can be less than zero, and can help stimulate aggregate
demand (cost of borrowing in real terms is lower). The nominal rate of interest is zero bound (traditionally) but not the real rate of interest. Some extra
inflation will help stimulate the economy given ZIRP because nominal rates of interest (if zero), given some additional price inflation, will lead to a more
negative real rate of interest.
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Comparative advantage is a normative argument (what a country should do). Evidence suggests that world trade patterns conform more to the
principle of absolute advantage, also known as competitive advantage. [Added, but not required explanation]: This is partly because Ricardo’s
comparative advantage assumes a nation-state level of analysis, whereby the world of trade is dominated by large business firms (micro level) who
innovate and compete by selling goods at cheaper prices. If company A is better at producing good X and company B is better at producing good Y
(and both firms are in the same country), they would export these goods respectively, not move to produce the comparatively cheaper good in terms of
the opportunity costs criterion. In short, as indicated in class, actual global trade is ruled by absolute advantage, not comparative advantage.