The open economy effect suggests that
A) a decrease in domestic price level will cause foreign residents to buy fewer domestic goods, increasing net exports.
B) a decrease in domestic price level will cause foreign residents to buy more domestic goods, increasing net exports.
C) a rise in domestic price level will cause foreign residents to buy more domestic goods.
D) a rise in domestic price level will cause domestic residents to buy fewer imported goods.

Question

Quizplus · Accepted Answer

When the domestic price level decreases, foreign residents find domestic goods cheaper compared to goods in their own country or other countries, leading them to buy more domestic goods. This increases the net exports of the domestic country.

The Open Economy Effect Suggests That