Final answer:
The foreign price effect states that higher domestic prices relative to foreign prices lead to expensive exports and cheaper imports.
Explanation:
The foreign price effect explains that when prices rise in the United States compared to other countries, U.S. goods become relatively more expensive globally. As a result, U.S. exports become pricier, leading to a decrease in the quantity of exports sold. Conversely, U.S. imports become relatively cheaper, causing an increase in the quantity of imports purchased.
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