Question

Suppose, Country X, has more inflation than Country Y. Which of the following is most likely situation to happen in such a case, assuming other factors being constant?

विकल्प

• A surplus trade balance in Country X

• A deficit trade balance for Country X

• A rise in exports from Country X to Country Y

• A deficit trade balance for Country Y

Answer 1

A deficit trade balance for Country X.

Explanation:

In country X, inflation indicates increasing manufacturing costs, which leads to higher pricing. As a result, exports become more expensive while imports become less expensive. It will result in a decrease in exports and an increase in imports. If a country's exports are less than its imports, the country will have a trade deficit.