Consider a simple macro model with demand- determined output. An exogenous increase in the domestic price level will
A)pivot the net export function and the AE curve upward.
B)shift the net export function downward and the AE curve upward.
C)shift both the net export function and the AE curve upward.
D)shift the net export function upward and the AE curve downward.
E)shift both the net export function and the AE curve downward.

Question

Quizplus · Accepted Answer

An increase in the domestic price level makes domestic goods more expensive relative to foreign goods, reducing net exports. This shifts the net export function downward. Consequently, the aggregate expenditure (AE) curve also shifts downward due to the decrease in net exports.

Consider a Simple Macro Model with Demand- Determined Output