Ceteris paribus,if average prices in the U.S.economy fall,then the
A)Real balances effect will lead to a lower quantity of U.S.output demanded.
B)Foreign trade effect will lead to a higher quantity of U.S.output demanded.
C)Interest rate effect will lead to a lower quantity of U.S.output demanded.
D)Profit effect will lead to a higher quantity of U.S.output demanded.

Question

Quizplus · Accepted Answer

According to the foreign trade effect, a fall in domestic prices will lead to a decrease in domestic interest rates, which will result in a decrease in the demand for domestic currency and an increase in the demand for foreign currency. This will cause an increase in exports and a decrease in imports, leading to an increase in the quantity of U.S. output demanded.

Ceteris Paribus,if Average Prices in the U