When the price level falls
A) imports increase, and exports decrease, which causes a movement up along the aggregate demand curve.
B) there is no impact on imports or exports, so there is no associated movement along the aggregate demand curve.
C) imports decrease and exports increase, which cause a movement down along the aggregate demand curve.
D) imports decrease and exports increase, which cause a movement up along the aggregate demand curve.

Question

Quizplus · Accepted Answer

When the price level falls, the country's goods and services become cheaper relative to foreign goods and services. This makes domestic goods more attractive to both domestic and foreign buyers, leading to a decrease in imports (since domestic consumers are less inclined to buy foreign goods) and an increase in exports (as foreign consumers are more inclined to buy the relatively cheaper domestic goods). This increase in net exports (exports minus imports) causes the aggregate demand curve to shift to the right, which is represented as a movement down along the aggregate demand curve, not up, because a lower price level is associated with a higher quantity of goods and services demanded.

When the Price Level Falls