An upward shift and flattening of the net export (NX)function can be caused by
A)an increase in domestic national income.
B)a decrease in foreign national income.
C)a decrease in domestic prices relative to foreign prices.
D)an increase in the Canadian-dollar price of foreign currency.
E)both C and D are correct

Question

Quizplus · Accepted Answer

A shift and flattening of the net export function can be caused by a decrease in domestic prices relative to foreign prices (choice C) or an increase in the Canadian-dollar price of foreign currency (choice D), as both of these factors can make domestic goods cheaper and more attractive to foreign buyers, leading to an increase in exports and a decrease in imports. However, changes in national income (choice A and B) typically affect NX through the income effect, which tends to create an upward sloping NX function rather than a flatter one. Therefore, the best answer is E, as both C and D are correct.

An Upward Shift and Flattening of the Net Export (NX)function