When inflation occurs, net exports will
A)increase as imports decrease.
B)increase as exports increase.
C)decrease as imports decrease.
D)decrease as imports increase.

Question

Quizplus · Accepted Answer

When inflation occurs, the prices of goods and services in the domestic market increase, making them relatively more expensive compared to the prices of foreign goods and services. As a result, consumers shift towards buying cheaper imports, decreasing net exports, which is the difference between exports and imports. Therefore, net exports will decrease as imports increase.

When Inflation Occurs, Net Exports Will