Question

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes ____ (A) the output effect. (B) the real-balances effect. (C) the foreign purchases effect. (D) the shift-of-spending effect

Answer 1

The statement describes the foreign purchases effect. When the price level increases in the United States relative to foreign countries, American consumers tend to purchase more foreign goods and fewer U.S. goods.

Step-by-step explanation:

The statement describes the foreign purchases effect.

When the price level increases in the United States relative to foreign countries, American consumers tend to purchase more foreign goods and fewer U.S. goods. This happens because the higher domestic price level makes U.S. exports relatively more expensive compared to goods from other countries, leading to a decrease in exports. At the same time, U.S. imports from abroad become relatively cheaper, increasing imports.

This effect is known as the foreign purchases effect and it contributes to a reduction in net export expenditures.

Answer 2

The correct answer is (C) the foreign purchases effect.

Step-by-step explanation:

As a result of a negative situation for the internal economy, where the price of goods and services increases as a result of economic phenomena, people and companies tend to resort to the process of purchasing abroad, in order to meet their needs with A minimum amount of money.