If the price level increases,then
A)the exchange rate will increase,causing Canadian goods to become cheaper and increasing the quantity demanded for domestic goods.
B)imports increase but exports do not change.Therefore,there is no effect on the quantity demanded for goods and services.
C)foreigners buy fewer Canadian goods,leaving more goods for Canadians and an increase in the quantity demanded for goods and services produced domestically.
D)domestic goods are more expensive relative to foreign goods,which reduces quantity demanded for domestic goods.

Question

Quizplus · Accepted Answer

According to the law of demand, as the price of a good or service increases, the quantity demanded decreases. Therefore, if the overall price level increases, domestic goods become more expensive relative to foreign goods, leading to a reduction in the quantity demanded for domestic goods. Option A is incorrect because an increase in the exchange rate would make Canadian goods more expensive, not cheaper. Option B is incorrect because an increase in the price level would affect both imports and exports, thus leading to changes in the quantity demanded for goods and services. Option C is incorrect because a decrease in the quantity demanded by foreigners would lead to a decrease in demand and production for Canadian goods, as opposed to an increase.

If the Price Level Increases,then