What impact does a decrease in the price level in the United States have on net exports and why?
A)A decrease in the price level increases net exports because lower prices increase the value of the dollar.
B)A decrease in the price level increases net exports by reducing the relative cost of American goods.
C)A decrease in the price level reduces net exports because lower prices raise the value of the dollar.
D)A decrease in the price level reduces net exports because lower prices increase American spending on imports.

Question

Quizplus · Accepted Answer

A decrease in the price level reduces the relative cost of American goods, making them more attractive to foreign buyers. As a result, net exports increase. Option A is incorrect because a decrease in the price level would reduce the value of the dollar, making American goods cheaper for foreign buyers. Option C is incorrect because a decrease in the price level would reduce the value of the dollar and make American goods cheaper, leading to an increase in net exports. Option D is incorrect because a decrease in the price level reduces the cost of American goods, which would decrease spending on imports, rather than increase it.

What Impact Does a Decrease in the Price Level in the United