Everything else constant, the international trade effect indicates that aggregate expenditures in the domestic economy fall when:

Question

Quizplus · Accepted Answer

The international trade effect suggests that when domestic prices rise relative to foreign prices, imports become relatively cheaper and exports become relatively more expensive. This leads to a fall in aggregate expenditures in the domestic economy as consumers and firms switch to cheaper imports and foreign consumers and firms reduce their demand for relatively expensive domestic exports.

Everything Else Constant, the International Trade Effect Indicates That Aggregate