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

As the price level decreases in an open economy, the domestic goods become relatively cheaper compared to foreign goods. This leads to an increase in the demand for domestic goods and thus an increase in the quantity of real GDP demanded. This is because consumers switch from buying foreign goods to relatively cheaper domestic goods, which increases the demand for domestic goods and stimulates the production of more goods and services, leading to an increase in real GDP demanded.

In an Open Economy as the Price Level Decreases,what Is