One explanation for the inverse relationship between the price level and output,as depicted by a downward-sloping AD curve,is that a fall in the domestic price level,other things including the exchange rate and the foreign price level remaining constant,makes domestic goods ___________ to foreign consumers and foreign goods more expensive to Canadians,which ___________ Canada's net exports.This is called the ___________ on spending.

Question

Quizplus · Accepted Answer

As the domestic price level falls, domestic goods become cheaper relative to foreign goods, which will increase exports and decrease imports, resulting in an increase in net exports. This is called the foreign trade effect. Therefore, the best choice is C as it correctly identifies the decrease in price level, increase in net exports, and the foreign trade effect.

One Explanation for the Inverse Relationship Between the Price Level