Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The country will likely see an increase in exports as foreign buyers rush to purchase goods before prices rise further.
B
The country may experience a decrease in exports as higher prices deter foreign buyers, potentially leading to trade deficits.
C
The country will remain unaffected in its trade relationships since inflation only impacts domestic markets.
D
The country will benefit from increased foreign investment as inflation signals a growing economy.
Understanding the Answer
Let's break down why this is correct
Answer
When a country has a significant rise in inflation, it means that the prices of goods and services are increasing quickly. If the prices of the country’s export goods go up by 30%, this can make those goods more expensive for other countries to buy. As a result, international buyers may look for cheaper alternatives from other countries, which can lead to a decrease in the country’s exports. For example, if a country that exports coffee raises its prices, buyers might turn to coffee from another country that offers lower prices. Overall, higher prices can strain trade relationships by reducing demand for the country's exports.
Detailed Explanation
When prices go up a lot, foreign buyers may not want to pay more. Other options are incorrect because Some might think that higher prices mean more buyers will rush to buy; It's a common belief that inflation only affects local markets.
Key Concepts
Inflation and its impact on trade
Price elasticity of demand in international markets
Export dynamics
Topic
Inflation and Trade Effects
Difficulty
medium level question
Cognitive Level
understand
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