During the 1990s,a financial crisis spread throughout Asia causing those economies to drop into recessions.Other things constant,how would such a decrease in the income of foreign trading partners have influenced the price level and output of the United States?
A)Both real output and the price level would have fallen.
B)Both real output and the price level would have risen.
C)Real output would have fallen,and the price level would have risen.
D)Real output would have risen,and the price level would have fallen.

Question

Quizplus · Accepted Answer

A decrease in the income of foreign trading partners would result in a decrease in demand for US exports, leading to a decrease in output for US firms. This decrease in output would also lead to a decrease in employment, which would further decrease demand and output. The decrease in demand for US exports would also lead to a decrease in the price level, as firms reduce prices to remain competitive. Therefore, both real output and the price level would have fallen.

During the 1990s,a Financial Crisis Spread Throughout Asia Causing Those