When prices rise in the United States, what is the effect on net exports and aggregate expenditure?
A)Exports become cheaper, imports become more expensive, net exports rise, and aggregate expenditure rises.
B)Real interest rates rise, leading to capital inflows and dollar appreciation, and exports rise and imports fall; thus, both net exports and aggregate expenditure fall.
C)The real value of exports rises, the real value of imports falls, net exports fall, and aggregate expenditure falls.
D)Exports become more expensive, imports become cheaper, net exports fall, and aggregate expenditure falls.

Question

Quizplus · Accepted Answer

When prices rise in the United States, exports become more expensive, making it harder to compete in global markets. This results in a decrease in exports, while cheaper imports become more attractive to domestic consumers, leading to an increase in imports. As a result, net exports fall, and aggregate expenditure also falls as consumers and businesses spend more on cheaper imported products.

When Prices Rise in the United States, What Is the Effect