If U.S. prices increase relative to the rest of the world, what effect would we expect to see on traded goods?
A) Imports and net exports would increase.
B) Exports and net exports would decrease.
C) Imports would decrease and net exports would increase.
D) Exports would decrease and net exports would increase.

Question

Quizplus · Accepted Answer

When U.S. prices increase relative to the rest of the world, U.S. goods become more expensive for both Americans and foreigners. This leads to a decrease in exports (as U.S. goods are less competitive abroad) and an increase in imports (as foreign goods are relatively cheaper), which together result in a decrease in net exports.

If US Prices Increase Relative to the Rest of the World