A price level increase tends to reduce net exports,thereby reducing the amount of real goods and services purchased in Canada.Economists refer to this phenomenon as
A)the wealth effect.
B)the barrier effect.
C)the open-economy effect.
D)the GDP effect.

Question

Quizplus · Accepted Answer

The phenomenon described in the question is known as the open-economy effect, which refers to the impact of changes in the exchange rate on net exports. When the price level in Canada increases, it makes Canadian goods relatively more expensive compared to foreign goods, reducing net exports and thereby reducing the amount of real goods and services purchased in Canada. The wealth effect refers to the impact of changes in wealth on consumption, the barrier effect is not a commonly used term in economics, and the GDP effect is not a valid concept.

A Price Level Increase Tends to Reduce Net Exports,thereby Reducing