Suppose the United States experiences a long period of relatively stable prices while other countries experience long periods of inflation. How will this affect U.S. net exports?

I think that if U.S have long period of stable prices ,when U.S export some products abroad , it will be cheaper than the others.Therefor Export will increase How can we predict net export?

  • $\begingroup$ Hint: What does net export mean? $\endgroup$
    – Herr K.
    Jan 13, 2018 at 21:35
  • $\begingroup$ I know export-import .However I couldn't understand how it effects import .@HerrK. $\endgroup$
    – sha
    Jan 13, 2018 at 22:13
  • 1
    $\begingroup$ The exchange rate would adjust. You should look up purchasing power parity. $\endgroup$ Jan 14, 2018 at 0:06

1 Answer 1


Net exports are exports less imports.

If other countries begin to experience inflation while US prices remain stable, then the dollar becomes more attractive to investors as its purchasing power has maintained more so than foreign currencies. The demand for dollars increases, which leads to an appreciation of the home currency. This leads to a decrease in net exports as US goods become pricier relative to foreign goods.

This theoretical relationship between the exchange rate and the relative purchasing power of two currencies is known as purchasing power parity.


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