The substitution effect suggests that a decrease in the Canadian price level relative to other countries will:
A) shift the aggregate demand curve leftward.
B) shift the aggregate supply curve leftward.
C) decrease Canadian net exports.
D) increase Canadian net exports.

Question

Quizplus · Accepted Answer

The substitution effect implies that when the price level in Canada decreases relative to other countries, Canadian goods and services become relatively cheaper for both Canadians and foreigners. This makes Canadian exports more attractive to foreign buyers while making imports more expensive for Canadians, leading to an increase in Canadian net exports.

The Substitution Effect Suggests That a Decrease in the Canadian