APFIVE Foreign Sector Substitution Effect
Which of the following best describes the foreign sector substitution effect as it pertains to aggregate demand?
A
An increase in domestic prices has no impact on the relative attractiveness of imported goods.
B
A decrease in domestic prices increases the cost competitiveness of exports, raising net exports.
C
A rise in domestic prices makes foreign goods relatively cheaper, increasing imports and reducing net exports.
D
An increase in domestic prices boosts domestic incomes, thereby increasing aggregate demand.
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