If the foreign price level rises, there is a(n) ________ and net exports ________.

Question

Quizplus · Accepted Answer

When the foreign price level rises, the domestic currency can buy more foreign goods for the same amount, effectively making foreign goods cheaper relative to domestic goods. This situation leads to a depreciation of the real exchange rate, as the domestic currency's value decreases in terms of how many foreign goods it can buy. As a result, domestic goods become relatively more expensive for foreigners, leading to a decrease in exports and an increase in imports, which means net exports rise because domestic goods become more competitive abroad.

If the Foreign Price Level Rises, There Is A(n) ________