Ceteris paribus,if average prices in the U.S.economy fall,then the
A)Real balances effect will lead to a lower quantity of U.S.output demanded.
B)Foreign trade effect will lead to a higher quantity of U.S.output demanded.
C)Interest rate effect will lead to a lower quantity of U.S.output demanded.
D)Profit effect will lead to a higher quantity of U.S.output demandeD.As the domestic price level falls,consumers (domestic and international)will buy more U.S.-made products and exports will rise.In essence,exports will rise,and imports will fall.

Question

Quizplus · Accepted Answer

According to the foreign trade effect, as the domestic price level falls, consumers (domestic and international) will buy more U.S.-made products and exports will rise. In essence, exports will rise, and imports will fall. Therefore, a fall in average prices in the U.S. economy will lead to a higher quantity of U.S. output demanded due to increased foreign trade.

Ceteris Paribus,if Average Prices in the U