Concept:A rise in the international value of a currency makes exports more expensive for foreign buyers and imports cheaper for domestic buyers.
Explanation:When a country's currency appreciates, foreign buyers must spend more of their own currency to purchase the same exports, so export demand tends to fall.
Domestic consumers can now buy imported goods with less of their home currency, so import demand tends to rise.
Net exports are given by exports minus imports:
NE=X−M.
As exports fall and imports rise, the value of
NE clearly goes down.
Therefore, with all other things held constant, a currency appreciation causes net exports to decrease.
Answer:C. net exports tend to decrease