According to the net exports effect,as the price level falls relative to the rest of the world,
A) foreigners buy fewer goods.
B) foreigners buy more U.S. goods.
C) the aggregate demand curve shifts to the left.
D) the aggregate demand curve shifts to the right.
E) the supply of U.S.-made goods increases.

Question

Quizplus · Accepted Answer

When the price level falls relative to the rest of the world, U.S. goods become relatively cheaper compared to foreign goods. This makes U.S. exports relatively more attractive to foreigners, leading to an increase in net exports. This increase in net exports shifts the aggregate demand curve to the right. Therefore, foreigners buy more U.S. goods (choice B).

According to the Net Exports Effect,as the Price Level Falls