As the domestic price level falls domestic citizens will import less and direct spending to relatively cheaper domestic goods. Foreigners may also purchase more exports. Overall this will improve the trade balance and increasing aggregate demand. This phenomenon is known as the wealth effect the exchange rate effect the interest rate effect the liquidity effect

As the domestic price level falls domestic citizens will import less and direct spending to relatively cheaper domestic goods. Foreigners may also purchase more exports. Overall this will improve the trade balance and increasing aggregate demand. This phenomenon is known as the wealth effect the exchange rate effect the interest rate effect the liquidity effect

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter8: Aggregate Demand And Aggregate Supply

Section: Chapter Questions

Problem 14QP

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