The international-trade effect states that, ceteris paribus, an increase in the price level will:
A)increase net exports.
B)decrease net exports.
C)increase exports.
D)decrease imports.

Question

Quizplus · Accepted Answer

The international-trade effect states that as the price level increases, the domestic goods become relatively more expensive compared to foreign goods. Therefore, imports become relatively cheaper, resulting in an increase in the demand for imports and a decrease in net exports. So, an increase in the price level will decrease net exports.

The International-Trade Effect States That, Ceteris Paribus, an Increase in the Price