As the price level falls,
A)the exchange rate falls,so net exports fall.
B)the exchange rate falls,so net exports rise.
C)the exchange rate rises,so net exports fall.
D)the exchange rate rises,so net exports rise.

Question

Quizplus · Accepted Answer

When the price level falls, domestic goods become cheaper relative to foreign goods, leading to a depreciation of the exchange rate, which makes exports cheaper and imports more expensive, thus increasing net exports.

As the Price Level Falls