The Substitution (Trade-Effect) Shows That

Multiple Choice

The substitution (trade-effect) shows that:

A) an increase in the domestic price level will make domestic goods more expensive relative to foreign goods. As a result, people would buy less domestic goods and buy more foreign goods.
B) a lower price level will decrease the real value of many financial assets and therefore reduce net export spending.
C) a higher price level will increase the real value of many financial assets and therefore increase net export spending.
D) an increase in the price level in foreign economies will also make domestic goods more expensive relative to foreign goods. As a result, people would buy less domestic goods and buy more foreign goods