In an open economy,as the price level increases,what is the impact on the demand for domestic goods and the quantity of real GDP demanded?
A)The demand for domestic goods will increase, resulting in an increase in the quantity of real GDP demanded.
B)The demand for domestic goods will increase, resulting in a decrease in the quantity of real GDP demanded.
C)The demand for domestic goods will decrease, resulting in an increase in the quantity of real GDP demanded.
D)The demand for domestic goods will decrease, resulting in a decrease in the quantity of real GDP demanded.

Question

Quizplus · Accepted Answer

In an open economy, as the price level increases, the demand for domestic goods decreases because foreign goods become relatively cheaper. Therefore, consumers are more likely to switch to buying foreign goods, reducing the quantity of domestic goods demanded. As a result, the quantity of real GDP demanded also decreases.

In an Open Economy,as the Price Level Increases,what Is the Impact