If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes
A) the output effect.
B) the foreign purchases effect.
C) the real-balances effect.
D) the shift-of-spending effect.

Question

Quizplus · Accepted Answer

This statement describes the foreign purchases effect, which is a result of changes in relative prices. When prices in the United States increase relative to prices in foreign countries, American consumers will opt to buy more foreign goods, leading to a decrease in the purchase of U.S. goods.

If the Price Level Increases in the United States Relative