An increase in aggregate demand due to higher foreign income will cause:
A)domestic equilibrium GDP to increase.
B)domestic equilibrium GDP to decrease.
C)domestic prices to fall.
D)foreign prices to fall.
E)foreign equilibrium GDP to fall.

Question

Quizplus · Accepted Answer

An increase in aggregate demand will cause domestic equilibrium GDP to rise since there will be an increase in demand for domestic products and services. This is due to higher foreign income, which increases foreign demand for these goods and services, thereby increasing exports and aggregate demand in the domestic economy.

An Increase in Aggregate Demand Due to Higher Foreign Income