If the price level increases, then
A) the exchange rate will increase, causing U.S. goods to become cheaper and increasing total planned real expenditures.
B) imports increase but exports do not change. Therefore, there is no effect on total planned real expenditures.
C) foreign residents buy fewer U.S. goods, leaving more goods for U.S. residents and an increase in total planned real production by firms.
D) domestic goods are more expensive relative to foreign goods, which reduces total planed real expenditures.

Question

Quizplus · Accepted Answer

If the price level increases, domestic goods become relatively more expensive compared to foreign goods. This reduces total planned real expenditures as consumers will be less willing to buy domestic goods and more willing to buy cheaper foreign goods.

If the Price Level Increases, Then