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Suppose That I) the Dollar Depreciated, Ii) Domestic Prices in the United

Question 3

Multiple Choice

Suppose that i) the dollar depreciated, ii) domestic prices in the United States rose, and iii) real income in the United States nonetheless rose, too.
In this case, you would expect net exports to

A) fall because each of the events noted tends to push net exports down.
B) rise because each of the events noted tends to push net exports down.
C) fall, but you would be unsure because the depreciation of the dollar would tend to push exports up even as imports rose in response to domestic inflation and real GDP.
D) rise, but you would be unsure because domestic inflation would tend to depress exports even as imports fell in response to the depreciation and income effects.
E) none of the above.

Correct Answer: