What happens in the domestic economy when there is a decrease in foreign prices, all other things unchanged?
A) Net exports and aggregate demand fall.
B) Net exports fall and aggregate demand increases.
C) Net exports and aggregate demand increase.
D) Net exports rise and aggregate demand falls.

Question

Quizplus · Accepted Answer

When there is a decrease in foreign prices, imports become relatively cheaper compared to domestic production. This leads to an increase in imports and a decrease in net exports, which in turn leads to a decrease in aggregate demand. Therefore, choice A is the correct option.

What Happens in the Domestic Economy When There Is a Decrease