The net exports effect is the inverse relationship between net exports and the ____ of an economy.
A) potential real GDP
B) chain-price deflator
C) price level
D) consumption spending

Question

Quizplus · Accepted Answer

The net exports effect describes the relationship between net exports and the price level of an economy. Specifically, as the price level increases, net exports tend to decrease, resulting in a decrease in overall aggregate demand. This happens because as prices rise, exports become relatively more expensive for foreign buyers, which can reduce demand for a country's exports. Additionally, as import prices rise, domestic consumers may shift their spending away from imports and towards domestically-produced goods, further reducing net exports. Therefore, the net exports effect is closely tied to changes in price levels.

The Net Exports Effect Is the Inverse Relationship Between Net