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

Question

Quizplus · Accepted Answer

An increase in domestic prices relative to foreign prices (choice C) would make domestic goods relatively more expensive for foreign buyers, reducing exports and increasing imports, thus decreasing net exports. A decrease in the Canadian-dollar price of foreign currency (choice D) makes foreign goods relatively more expensive for domestic buyers, reducing imports and increasing exports, thus increasing net exports. Together, both factors would cause a downward shift and steepening of the net export function. An increase in domestic national income (choice A) would tend to increase imports, reducing net exports and shifting the function upward. A decrease in foreign national income (choice B) would reduce foreign demand for Canadian exports, reducing net exports and shifting the function downward.

Which of the Following Can Cause a Downward Shift and Steepening