The “net exports effect” is the impact on a country’s total spending caused by an inverse...

Question

The “net exports effect” is the impact on a country’s total spending caused by an inverse rel
ationship between the price level and the net exports of an economy. Using this principle, d
iscuss how the following economic variables change during an economic expansion:
o The balance of payments
o The rate of interest
o The value of the dollar
o
In your answer, also discuss the case in the context of both a flexible exchange rate and a fix
ed exchange rate.
Answer:
During an economic expansion, aggregate demand tends to increase and as a result price
level of the economy rises. With increase in price level in the domestic economy, domestic
goods and services becomes expensive and as a result...

Robert · Accepted Answer

The “net exports effect” is the impact on a country’s total spending caused by an inverse rel
ationship between the price level and the net exports of an economy. Using this principle, d
iscuss how the following economic variables change during an economic expansion: 
o The balance of payments 
o The rate of interest 
o The value of the dollar 
o  
In your answer, also discuss the case in the context of both a flexible exchange rate and a fix
ed exchange rate. 
Answer: 
During an economic expansion, aggregate demand tends to increase and as a result price 
level of the economy rises. With increase in price level in the domestic economy,

The “net exports effect” is the impact on a country’s total spending caused by an inverse relationship between the price level and the net exports of an economy. Using this principle, discuss how the...

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