Which statement best describes what happens when the price level falls?
A) Households increase foreign bond purchases, and the supply of dollars increases.
B) Households increase foreign bond purchases, and the supply of dollars decreases.
C) Households decrease foreign bond purchases, and the supply of dollars increases.
D) Households decrease foreign bond purchases, and the supply of dollars decreases.

Question

Quizplus · Accepted Answer

When the price level falls, domestic goods become relatively cheaper, leading households to purchase more foreign bonds. This increases the supply of dollars in the foreign exchange market as households exchange dollars for foreign currency to buy these bonds.

Which Statement Best Describes What Happens When the Price Level