📚 Learning Guide
Inflation and Trade Effects
hard

How does an increase in inflation typically affect a country's exports and imports in the context of its economic structure?

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Choose the Best Answer

A

Exports increase and imports decrease due to higher domestic prices.

B

Both exports and imports increase as inflation leads to higher demand globally.

C

Exports decrease and imports increase because domestic goods become more expensive for foreign buyers.

D

Both exports and imports remain unchanged regardless of inflation.

Understanding the Answer

Let's break down why this is correct

Answer

When inflation increases in a country, it usually means that prices for goods and services are rising. This can make products from that country more expensive for other countries to buy, leading to a decrease in exports. For example, if a country's shoes cost $50 due to inflation, foreign buyers might choose to buy cheaper shoes from another country instead. On the other hand, imports may increase because foreign goods could become relatively cheaper for consumers in the country experiencing inflation. Overall, high inflation can hurt a country's ability to sell its goods abroad while making it easier for people to buy goods from other countries.

Detailed Explanation

When inflation rises, prices for goods in the country go up. Other options are incorrect because This answer suggests that higher prices will make exports go up; This option claims that both exports and imports increase.

Key Concepts

Exports
Imports
Economic structure
Topic

Inflation and Trade Effects

Difficulty

hard level question

Cognitive Level

understand

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