According to the foreign trade effect, when all else is equal, when the price level in a country increases, its exports _____, and its imports:
A) increase; increase.
B) decrease; increase.
C) increase; decrease.
D) decrease; decrease.

Question

Quizplus · Accepted Answer

The foreign trade effect suggests that when a country's price level rises, its goods become more expensive to foreigners, leading to a decrease in exports. Simultaneously, foreign goods become relatively cheaper to domestic consumers, resulting in an increase in imports.

According to the Foreign Trade Effect, When All Else Is