Question

Which of the following will cause U.S. net exports to increase?

Select all that apply:
1. changes in relative growth rates between countries
2. changes in relative prices between countries

Answer 1

U.S. net exports can increase due to changes in relative growth rates and changes in relative prices between countries. A stronger economic growth in importing countries or competitive pricing of U.S. goods relative to other countries can enhance U.S. export demand, improving net exports.

Step-by-step explanation:

Factors that can lead to an increase in U.S. net exports include both changes in relative growth rates between countries and changes in relative prices between countries. When economies of countries that are major importers of U.S. products enter into recessions, their demand for U.S. products generally declines, impacting U.S. exports negatively. Conversely, if these countries are experiencing growth, the demand for U.S. exports could increase.

Additionally, the foreign price effect dictates that if prices in the U.S. increase relative to other countries, U.S. goods become more expensive on the international market, leading to a reduction in the quantity of exports. Conversely, if U.S. prices remain stable or fall relative to other countries, U.S. goods become more competitive, potentially increasing exports and improving the net export figure.