The foreign trade effect suggests that an increase in the Canadian price level relative to other countries will:
A)increase the amount of Canadian real output purchased.
B)increase Canadian imports and decrease Canadian exports.
C)increase both Canadian imports and Canadian exports.
D)decrease both Canadian imports and Canadian exports.

Question

Quizplus · Accepted Answer

The foreign trade effect suggests that an increase in the Canadian price level relative to other countries will lead to an increase in Canadian imports (because foreign goods are relatively cheaper) and a decrease in Canadian exports (because Canadian goods are relatively more expensive).

The Foreign Trade Effect Suggests That an Increase in the Canadian