The foreign-trade effect causes the aggregate demand curve for an economy to:
A)slope downward.
B)slope upward.
C)become flatter.
D)becomes teeper.

Question

Quizplus · Accepted Answer

The foreign-trade effect refers to the changes in aggregate demand that occur due to changes in net exports, which are affected by factors such as exchange rates and foreign economic conditions. An increase in net exports, which can be caused by a decrease in the value of a country's currency or an increase in foreign demand for its goods and services, will lead to an increase in aggregate demand (and vice versa). This will cause the aggregate demand curve to slope downward, as there is an inverse relationship between the price level and the quantity of aggregate demand.

The Foreign-Trade Effect Causes the Aggregate Demand Curve for an Economy