What impact does an increase in the price level in Canada have on net exports and why?
A)An increase in the price level decreases net exports because higher prices decrease the value of the dollar.
B)An increase in the price level decreases net exports by increasing the relative cost of Canadian goods.
C)An increase in the price level increases net exports because higher prices lower the value of the dollar.
D)An increase in the price level increases net exports because higher prices decrease Canadian spending on imports.
E)An increase in the price level decreases net exports by reducing Canadian's nominal income.

Question

Quizplus · Accepted Answer

An increase in the price level increases the relative cost of Canadian goods, making them more expensive compared to foreign goods. This leads to a decrease in net exports as foreigners will be less likely to purchase Canadian goods.

What Impact Does an Increase in the Price Level in Canada