As the price level rises,
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

As the price level rises, domestic goods become more expensive relative to foreign goods, leading to an appreciation of the exchange rate. This makes exports more expensive and imports cheaper, causing net exports to fall.

As the Price Level Rises