Why does the increase in interest rates reduces demand for exports by Domestic Consumers & firms?

Question

I don't get it. What does exporting got to do with domestic consumers?

Answer 1

Using a money market curve;

Money supply would shift left which would cause inflation in the economy making our products more expensive in comparison to the similar products in other nations. Nations that export products from the US would reduce demand for US exports because our products would be more expensive in comparison to similar products in other nations. A drop in exports for the US would mean that the trading deficit would increase, further droping US GDP. Domestic consumers would export more goods from other countries because US goods would be more expensive. This means that US GDP would further decrease.

Dollars would leave the US market and be exchanged into other currencies which would then be spent in other countries. The influx of exchanged US dollars into other countries would cause inflation into other countries. This means that currencies of other nations would then be inflated. Then the process would reverse. US products would then be cheaper in comparison to similar products of other nations so other nations would want to trade more with the US.