Changes in the domestic price level cause consumers to purchase more of relatively cheaper foreign goods or less of relatively more expensive foreign goods. This effect is called which of the following?
A)the wealth effect
B)the constant-nominal-income effect
C)the substitution-of-foreign-goods effect
D)the investment effect

Question

Quizplus · Accepted Answer

The effect described in the question is known as the substitution-of-foreign-goods effect, as changes in the domestic price level can lead consumers to substitute relatively cheaper foreign goods for more expensive domestic goods. The other options listed (wealth effect, constant-nominal-income effect, and investment effect) describe different economic concepts and do not capture the specific effect described in the question.

Changes in the Domestic Price Level Cause Consumers to Purchase