Question

If foreign input prices increase and the United States is a purchaser of those inputs, then the U.S. ________?

1) Exports will increase
2) Exports will decrease
3) Imports will increase
4) Imports will decrease

Answer 1

If foreign input prices increase and the United States is a purchaser of those inputs, then the U.S. imports will increase.

Step-by-step explanation:

The foreign price effect states that if input prices increase in foreign countries and the United States purchases those inputs, then the U.S. imports will increase (option 3). This is because the foreign input prices become relatively cheaper compared to domestic input prices. As a result, the U.S. will import more goods from abroad.