📚 Learning Guide
Inflation and Trade Effects
easy

How does an increase in inflation typically affect a country's exports in the global market?

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Learning Path

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Choose the Best Answer

A

It makes exports more expensive for foreign buyers

B

It reduces production costs for exporters

C

It has no impact on international trade

D

It increases demand for exports by lowering prices

Understanding the Answer

Let's break down why this is correct

Answer

When a country experiences an increase in inflation, the prices of goods and services within that country tend to rise. This means that products made in that country become more expensive for foreign buyers. As a result, exports may decrease because other countries can find cheaper alternatives elsewhere. For example, if a country’s inflation rate rises and its products cost more, a foreign buyer might choose to purchase similar products from another country that has lower prices. Therefore, high inflation can lead to a decline in a country's competitiveness in the global market, negatively impacting its exports.

Detailed Explanation

When inflation rises, prices go up. Other options are incorrect because Some might think that higher inflation lowers costs for making goods; It's a common belief that inflation doesn't change trade.

Key Concepts

Inflation and its effect on trade
Price elasticity of demand in international markets
Exchange rates
Topic

Inflation and Trade Effects

Difficulty

easy level question

Cognitive Level

understand

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