The following figure shows the net exports curve for a country:

-Refer to the figure above.When the real exchange rate is above R*,________.

Question

The following figure shows the net exports curve for a country:
 
-Refer to the figure above.When the real exchange rate is above R*,________.

Quizplus · Accepted Answer

When the real exchange rate is above R*, net exports are negative. This is because at higher exchange rates, the country's goods become relatively more expensive compared to foreign goods, and thus demand for exports decreases while demand for imports increases. This leads to an increase in imports and a decrease in exports, resulting in a negative net exports position.

The Following Figure Shows the Net Exports Curve for a Country