Which of the following can cause an upward shift and flattening of the net export (NX)function?
A)an increase in domestic national income
B)a decrease in foreign national income
C)a decrease in domestic prices relative to foreign prices
D)an increase in the Canadian-dollar price of foreign currency
E)both C and D are correct

Question

Quizplus · Accepted Answer

A decrease in domestic relative prices (choice C) can make domestic goods relatively cheaper and more attractive to foreign consumers, leading to an increase in exports and an upward shift of the NX function. An increase in the Canadian-dollar price of foreign currency (choice D) can make foreign goods relatively more expensive and less attractive to domestic consumers, leading to a decrease in imports and a further upward shift of the NX function. Combining both effects (choices C and D) results in an upward shift and flattening of the NX function. An increase in domestic national income (choice A) can lead to an increase in import demand, shifting the NX function downward. A decrease in foreign national income (choice B) can reduce export demand, also shifting the NX function downward.

Which of the Following Can Cause an Upward Shift and Flattening