How Will the Following Affect Australian Net Exports

Question

Examlex · Accepted Answer

The Answer is a.If inflation in Australia is higher than inflation in other countries, then prices of goods and services increase more rapidly than the prices of goods and services of other countries. This difference in the price levels decreases the demand for Australian goods and services relative to foreign goods and services, ceteris paribus. Australian exports decrease, imports increase and Australian net exports decline.
b.As GDP decreases in Australia due to a recession, the incomes of households fall. Households respond by lowering their purchases of goods and services. Some of the decline in purchases includes domestic goods and services and some of the decline includes foreign produced goods and services. This essentially lowers imports. Assuming that exports do not change, net exports will rise.

How Will the Following Affect Australian Net Exports

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