If the price level in the United States increases relative to prices in foreign countries, then
A) imports and exports of the United States will increase.
B) imports and exports of the United States will decrease.
C) imports of the United States will decrease and exports of the United States will increase.
D) imports of the United States will increase and exports of the United States will decrease.

Question

Quizplus · Accepted Answer

If the price level in the United States increases relative to prices in foreign countries, then it would make U.S. goods relatively more expensive compared to foreign goods. This would lead to a decrease in exports of the United States as foreign countries would be less likely to buy the relatively expensive U.S. goods. At the same time, imports of the United States would increase as U.S. consumers would be more likely to buy relatively cheaper foreign goods. Therefore, the correct choice is D.

If the Price Level in the United States Increases Relative