According to the international effect explanation of the downward slope of the AD curve, a higher price level in the U.S. economy causes:
A) U.S. imports and U.S. exports to increase.
B) U.S. imports to decrease and U.S. exports to increase.
C) U.S. imports and U.S. exports to decrease.
D) US imports to increase and U.S. exports to decrease.

Question

Quizplus · Accepted Answer

According to the international effect explanation, a higher price level in the U.S. economy will make U.S. goods relatively more expensive compared to goods produced in other countries. This will cause U.S. exports to decrease as foreign consumers will switch to cheaper imports from other countries. At the same time, imports into the U.S. will be relatively cheaper, leading to an increase in imports. Therefore, the correct choice is D.

According to the International Effect Explanation of the Downward Slope