Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It improves the trade balance by making exports cheaper
B
It worsens the trade balance by making imports more expensive
C
It has no effect on the trade balance
D
It improves the trade balance by making imports cheaper
Understanding the Answer
Let's break down why this is correct
Answer
When a country's inflation increases, it usually means that prices for goods and services are rising faster than in other countries. This can lead to higher costs for consumers and businesses, making local products more expensive compared to those from abroad. As a result, people might buy more imported goods because they seem cheaper, which can hurt local businesses. For example, if a country experiences high inflation, its residents might choose to buy electronics from another country instead of paying more for local options. This shift can lead to a trade deficit, where imports exceed exports, negatively impacting the country's trade balance.
Detailed Explanation
When inflation goes up, prices in the country rise. Other options are incorrect because Some might think higher inflation makes exports cheaper; It's a common belief that inflation has no effect on trade.
Key Concepts
Inflation definition
Trade balance
Topic
Inflation and Trade Effects
Difficulty
medium level question
Cognitive Level
understand
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