ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -As the domestic price level rises, foreign‐made goods become relatively cheaper so that the demand for imports increases. However, the rise in the domestic price level also means that domestic‐made goods are relatively more expensive to foreign buyers so that the demand for exports decreases.

Detailed explanation-2: -A higher domestic price level means that domestic currency is appreciated with respect to foreign currencies. This makes imports cheaper and exports expensive. This reduces exports and increases imports in the economy which reduces the value of net exports.

Detailed explanation-3: -Price levels are leading indicators in the economy; rising prices indicate higher demand leading to inflation while declining prices indicate lower demand or deflation.

Detailed explanation-4: -A higher price level therefore reduces net exports. A lower price level encourages exports and reduces imports, increasing net exports.

Detailed explanation-5: -Imports from abroad will be relatively cheaper, so the quantity of imports will rise. Thus, a higher domestic price level, relative to price levels in other countries, will reduce net export expenditures.