With an aid of AS-AD diagram, explain the effect on output and price level when domestic products become more attractive overseas

When domestic products become more attractive to foreigners, the exports of goods increases, and thus the aggregate demand increases. The price level will increase and the output level will increase in the short run.

The inflationary gap will result in an upward pressure on the input prices. In the long run, wages will adjust upward and the SRAS will decrease. The price level will increase and the output will restore to its original level.