If the U.S.price level increases relative to price levels in foreign countries,_____.
A)the aggregate supply curve for the U.S.will shift outward and the aggregate demand curve would remain unchanged
B)the aggregate supply curve for the U.S.will shift inward and the aggregate demand curve would remain unchanged
C)the aggregate demand curve for the U.S.will shift outward and the aggregate supply curve would remain unchanged
D)the aggregate demand curve for the U.S.will shift inward and the aggregate supply curve would remain unchanged
E)both the aggregate demand and the aggregate supply curves for the U.S.will shift outward

Question

Quizplus · Accepted Answer

If the U.S. price level increases relative to price levels in foreign countries, U.S. goods become relatively more expensive, reducing the demand for U.S. exports and increasing the demand for imports. This leads to a decrease in net exports, which is a component of aggregate demand, causing the aggregate demand curve to shift inward. The aggregate supply curve would remain unchanged in this scenario.

If the USPrice Level Increases Relative to Price Levels in Foreign Countries,_____