An increase in the price level decreases net exports, thereby decreasing the amount of real goods and services purchased in the United States. This phenomenon as
A) the wealth effect.
B) the barter effect.
C) the GDP effect.
D) a substitution effect.

Question

Quizplus · Accepted Answer

This is a substitution effect as an increase in price level causes consumers to substitute domestic goods with foreign goods which results in a decrease in net exports.

An Increase in the Price Level Decreases Net Exports, Thereby