What is the international trade effect?
A) It is the tendency for exports to fall and imports to rise when the domestic price level falls relative to the foreign price level.
B) It is the tendency for exports to rise and imports to fall when the domestic price level falls relative to the foreign price level.
C) It is the tendency for domestic investments to fall when foreign interest rates rise relative to domestic interest rates.
D) It is the tendency for exchange rates to fall when foreign interest rates rise relative to domestic interest rates.

Question

Quizplus · Accepted Answer

The international trade effect refers to the impact of changes in relative price levels on a country's exports and imports. When the domestic price level falls relative to the foreign price level, it becomes cheaper for foreign buyers to purchase the domestic country's goods, leading to an increase in exports. At the same time, it becomes relatively more expensive for domestic consumers to buy foreign goods, leading to a decrease in imports. Therefore, exports rise and imports fall.

What Is the International Trade Effect