What does the foreign-trade effect suggest will happen if there is a decrease in the Canadian price level relative to other countries?
A)It will increase the volume of both Canadian exports and imports.
B)It will decrease the volume of both Canadian exports and imports.
C)It will increase the volume of Canadian exports but decrease the volume of imports.
D)It will decrease the volume of Canadian exports but increase the volume of imports.

Question

Quizplus · Accepted Answer

The foreign-trade effect suggests that a decrease in the Canadian price level relative to other countries will increase the volume of Canadian exports as they become relatively cheaper for foreigners to buy. At the same time, it will decrease the volume of imports as foreign goods become relatively more expensive for Canadians to buy. Therefore, choice C is the correct answer.

What Does the Foreign-Trade Effect Suggest Will Happen If There