If inflation in Canada is higher than inflation in other countries, what will be the effect on net exports for Canada?
A)Net exports will rise as Canadian exports increase.
B)Net exports will rise as Canadian imports decrease.
C)Net exports will decrease as Canadian exports decrease.
D)Net exports will decrease as Canadian imports increase.

Question

Quizplus · Accepted Answer

When inflation in Canada is higher than inflation in other countries, Canadian exports will become more expensive compared to goods from other countries. This will lead to a decrease in demand for Canadian exports and a decrease in net exports. In contrast, other countries' imports will become cheaper for Canadian consumers, which could increase imports and offset the impact of decreased exports, but not enough to outweigh the effect on net exports.

If Inflation in Canada Is Higher Than Inflation in Other