If inflation in Australia is lower than inflation in other countries, what will be the effect on net exports for Australia, ceteris paribus?
A)Net exports will rise as Australian exports increase.
B)Net exports will rise as Australian imports decrease.
C)Net exports will decrease as Australian exports decrease.
D)Net exports will decrease as Australian imports decrease.

Question

Quizplus · Accepted Answer

When inflation in Australia is lower than inflation in other countries, it makes Australian goods relatively cheaper compared to other countries. This leads to an increase in demand for Australian exports, resulting in a rise in net exports. Therefore, the best choice is A.

If Inflation in Australia Is Lower Than Inflation in Other