A fall in the Canadian-dollar price of foreign currency,other things being equal,causes Canada's net export (NX)function to shift ________ and ________.
A)upward; become flatter
B)upward; become steeper
C)downward; become flatter
D)downward; keep the same slope
E)downward; become steeper

Question

Quizplus · Accepted Answer

A fall in the Canadian-dollar price of foreign currency would make Canadian goods and services relatively cheaper for foreign buyers, increasing demand for Canadian exports and leading to an increase in NX. This would cause the NX function to shift downward, indicating higher net exports at every level of the exchange rate. The increase in exports would be greater for a steeper shift, indicating a higher responsiveness of net exports to changes in the exchange rate, which is captured by the slope of the NX function. Therefore, the NX function would shift downward and become steeper.

A Fall in the Canadian-Dollar Price of Foreign Currency,other Things