The “net exports effect” is a macroeconomic phenomenon that occurs when the price level of an economy and its net exports have an inverse relationship with one another (1). In other words, if the price level increases, net exports will decrease and vice versa. This effect can be seen in both developing and developed countries as it affects their aggregate demand, total spending and ultimately their economic growth.

To explain this further, it is important to consider how changes in price levels influence consumption behavior. When prices are lower relative to those in foreign markets ,consumers tend to buy more imported goods saving money compared domestic alternatives . As result ,incomes generated from abroad decline resulting decrease overall spending domestically leading recessionary periods (2) On other hand ,higher prices within home country lead consumer shift towards purchasing locally made products increase overseas incomes . Thus more money is spent within national borders giving boost activity throughout.

Additionally ,domestic businesses need adjust pricing strategies order remain competitive exporting goods abroad . If too low then production not profitable enough make sense while being overly high could lead customers turn cheaper options sourced internationally (3) Therefore right balance needs struck order ensure companies able receive most profits possible whilst still remaining attractive outside buyers.