The net exports effect exists because a:
A) higher price level will reduce interest rates and stimulate foreign investment.
B) lower price level will make domestically produced exports less expensive relative to foreign goods.
C) higher price level will reduce the purchasing power of money.
D) lower price level will encourage Americans to import more foreign goods.

Question

Quizplus · Accepted Answer

The net exports effect refers to how changes in the price level affect a country's exports and imports. A lower price level will make domestically produced exports less expensive relative to foreign goods, making them more attractive to foreign buyers and increasing exports. This will lead to a positive impact on net exports and, in turn, aggregate demand.

The Net Exports Effect Exists Because A