The increase in spending that occurs because domestic goods become cheaper relative to foreign goods when the price level falls is known as the
A) interest rate effect.
B) international trade effect.
C) price effect.
D) wealth effect.

Question

Quizplus · Accepted Answer

The increase in spending due to domestic goods becoming cheaper relative to foreign goods is known as the international trade effect. This occurs because as the price level falls, domestic goods become more attractive to consumers abroad, leading to an increase in exports and domestic production, thereby increasing overall spending in the economy. The other options - interest rate effect, price effect, and wealth effect - do not describe this phenomenon.

The Increase in Spending That Occurs Because Domestic Goods Become