One Explanation for the Inverse Relationship Between the Price Level

question 89

Multiple Choice

One explanation for the inverse relationship between the price level and output,as depicted by a downward-sloping AD curve,is that a fall in the domestic price level,other things including the exchange rate and the foreign price level remaining constant,makes domestic goods ___________ to foreign consumers and foreign goods more expensive to Canadians,which ___________ Canada's net exports.This is called the ___________ on spending.

• A) more expensive;increases;foreign trade effect
• B) cheaper;increases;real balance effect
• C) cheaper;increases;foreign trade effect
• D) cheaper;decreases;foreign trade effect
• E) cheaper;decreases;real-balances effect

---

Definitions:

Money Supply

The total amount of monetary assets available within an economy at a specific time.

Prices

The amount of money required to purchase goods or services.

Inflation Rate

The pace at which the average cost of goods and services increases, leading to a reduction in buying power.

General Level

A term that might refer to the overall state or condition of something, but not a specific financial term.