Question

Suppose the price level in Germany rises,ceteris paribus.This ________________ United States net exports,ultimately shifting the United States AD curve ____________________.
A) stimulates;rightward
B) stimulates;leftward
C) depresses;rightward
D) depresses;leftward.

Answer 1

Answer:

A) stimulates;rightward

Explanation:

If prices rises in Germany, it means that Germany is going through an inflationary period. This will make German goods more expensive, and less attractive in international markets.

American goods will then become more attractive, because they are now cheaper compared to German goods. This will stimulate American exports to Germany.

A higher level of exports will shift the AD curve to the right, because net exports is one of the four components of Aggregate Demand, and a shift rightward of the AD curve occurs when Aggregate Demand expands due to any factor other than price level.