Question

if inflation in the united states is higher than inflation in other countries, what will be the effect on net exports for the united states?

Answer 1

If inflation in the United States is higher than inflation in other countries, then US Exports decrease and US imports increase which decrease net exports.

In the world of business, inflation is defined as a rise in the cost of goods in a location or nation. The amount of money or purchasing power decreases as a result of these high prices.

If inflation in the United States is higher than inflation in other countries, the costs and prices domestically produced goods become more expensive than similar goods made in abroad.Due to higher inflation United States will buy more foreign goods so imports will increase. Exports will decrease as foreign countries spend less on purchasing goods produced in United States which will decrease the exports. As a result net exports will decrease and this results in trade deficit.

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