Question

Other things the same, an increase in the price level causes the interest rate to :
b. increase, the dollar to appreciate, and net exports to decrease.

Can someone explain to me how this is the answer?

Answer 1

Well when the price level rises the interest rate rises which means now people would be more willing to save then spend...when the dollar appreciates it means it can buy more of a good so the net exports would decrease as dollar has rose in the international market so the country which is importing would be able to import less because of the rise in dollar value hence net exports would decrease.