Ceteris paribus,if average prices in the U.S.economy fall,then the
A)Real balances effect will lead to a lower quantity of U.S.output demanded.
B)Foreign trade effect will lead to a higher quantity of U.S.output demanded.
C)Interest rate effect will lead to a lower quantity of U.S.output demanded.
D)Profit effect will lead to a higher quantity of U.S. output demanded.

Question

Quizplus · Accepted Answer

According to the foreign trade effect, when domestic prices fall, domestic goods become relatively cheaper compared to foreign goods, which increases demand for domestic goods and exports rise. As a result, the quantity of U.S. output demanded increases.

Ceteris Paribus,if Average Prices in the U