In the Mundell-Fleming model with flexible exchange rates, an increase in the price level results in a(n) ______ in the real exchange rate and a(n) ______ in net exports.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Question

Quizplus · Accepted Answer

In the Mundell-Fleming model with flexible exchange rates, an increase in the price level leads to a decrease in the real exchange rate (making domestic goods more expensive relative to foreign goods) and consequently a decrease in net exports (as domestic goods become less competitive internationally).

In the Mundell-Fleming Model with Flexible Exchange Rates, an Increase