What impact does a decrease in the price level in Canada have on net exports and why?
A)A decrease in the price level increases net exports because lower prices increase the value of the dollar.
B)A decrease in the price level increases net exports by reducing the relative cost of Canadian goods.
C)A decrease in the price level reduces net exports because lower prices raise the value of the dollar.
D)A decrease in the price level reduces net exports because lower prices increase American spending on imports.
E)A decrease in the price level reduces net exports because lower prices reduce the value of the Canadian dollar making exports more costly.

Question

Quizplus · Accepted Answer

A decrease in the price level reduces the cost of Canadian goods, making them relatively cheaper compared to foreign goods. This leads to an increase in demand for Canadian goods, resulting in an increase in exports and hence an increase in net exports.

What Impact Does a Decrease in the Price Level in Canada