If the U.S. aggregate price level falls
A) the purchasing power of wealth declines.
B) net exports rise.
C) interest rates go up.
D) the aggregate demand curve shifts to the right.

Question

Quizplus · Accepted Answer

When the U.S. aggregate price level falls, the purchasing power of the dollar increases relative to foreign currencies. This makes U.S. goods cheaper for foreigners, leading to an increase in demand for U.S. exports. At the same time, foreign goods become relatively more expensive for U.S. consumers, leading to a decrease in imports. Together, these effects cause net exports to rise.

If the U.S. Aggregate Price Level Falls