Price Level vs. GDP

[Studyguy]

I’m given the following statement, “Net exports vary negatively with income and negatively with domestic price levels”. I feel that the price level part is contradicted by the fact that (G-T)+(X-M) is downward sloping.
Please clarify where I’m wrong here: if price levels rise, then income decreases. Consequently, if income decreases, shouldn’t (X-M) increase, based on the the downward sloping (G-T)+(X-M) curve? Wouldn’t this mean that price level varies positively with domestic price levels?

 

[bfry]

The original statement is correct. The logic is that if domestic income levels rise then we will consume more - i.e. import more foreign goods and therefore (X-M) will be negative.
Also, if domestic price levels rise then domestic goods will be less attractive in domestic markets and we will import more foreign goods and (again) therefore (X-M) will be negative.
I think the above corrects where you are going wrong with ”if price levels rise, then income decreases. Consequently, if income decreases, shouldn’t (X-M) increase” If price levels rise and incomes decrease, cheaper foreign goods will be more attractive in domestic markets and thus we will import more and (X-M) will go down/decrease, etc.