The change in aggregate expenditures resulting from a change in the domestic price level that changes the price of domestic goods in relation to foreign goods is known as a(n)
A) international trade effect.
B) international deficit effect.
C) international exchange rate effect.
D) multilateral equilibrium condition.
E) international pricing effect.

Question

Quizplus · Accepted Answer

The change in aggregate expenditures resulting from a change in the domestic price level that changes the price of domestic goods in relation to foreign goods is known as the international trade effect. This effect occurs when a change in the price level affects a country's imports and exports. If the price level in a country increases, its exports become relatively more expensive for foreigners, and its imports become relatively cheaper for domestic consumers. As a result, the country's net exports decrease, leading to a decrease in aggregate expenditures.

The Change in Aggregate Expenditures Resulting from a Change in the Domestic