A downward shift and steepening 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)an increase in domestic prices relative to foreign prices.
D)a decrease in the Canadian-dollar price of foreign currency.
E)both C and D are correct.

Question

Quizplus · Accepted Answer

A shift in the NX function occurs due to changes in the relative prices of domestic and foreign goods, as well as changes in national incomes. An increase in domestic prices relative to foreign prices (C) makes domestic goods more expensive, causing a decrease in exports and an increase in imports, leading to a decrease in net exports. A decrease in the Canadian-dollar price of foreign currency (D) means that more foreign goods can be purchased with domestic currency, resulting in an increase in imports and a decrease in net exports. Therefore, both C and D are correct, explaining the downward shift and steepening of the NX function.

A Downward Shift and Steepening of the Net Export (NX)function