The foreign purchases effect suggests that a decrease in the American price level relative to those in other countries will

Question

Quizplus · Accepted Answer

The foreign purchases effect suggests that a decrease in the price level in the US relative to other countries will increase exports and decrease imports. This is because US goods become relatively cheaper compared to goods in other countries, leading to an increase in demand for US goods from foreign countries and a decrease in domestic demand for foreign goods. Therefore, the correct choice is D, which states that a decrease in the American price level relative to those in other countries will increase American exports and decrease American imports.

The Foreign Purchases Effect Suggests That a Decrease in the American