A higher domestic price level should
A) decrease net exports.
B) increase desired investment.
C) increase real wealth and consumption.
D) none of these.

Question

Quizplus · Accepted Answer

A higher domestic price level will make domestic goods more expensive relative to foreign goods, causing exports to decrease and imports to increase. This will lead to a decrease in net exports, making choice A the best answer. Choice B may be true in certain circumstances, but it is not a direct result of a higher price level. Similarly, choice C may occur in the short run, but in the long run, a higher price level will lead to inflation and a decrease in purchasing power, making real wealth and consumption decrease.

A Higher Domestic Price Level Should