if inflation is higher in country $A$ than in Country $B$ , and the exchange rate between the two countriesi is fixed, what is likely to happen to the trade balance between the two countries?

Open in App

Solution

In this situation, the exports from country $B$ to country $A$ will rise and it will lead to surplus trade balance for country $B$ . However, due to higher prices in country $A$ , its imports will increase from country $B$ and it will lead to deficit in trade balance for country $A$ .

Suggest Corrections

Similar questions

Suppose that the inflation is higher in country A than in country B, and the exchange rate between the two countries is fixed. What is likely to happen to the trade balance between the two countries?

If inflation is higher in country A than in Country B, and the exchange rate between the two countries is fixed, what is likely to happen to the trade balance between the two countries?

Q. ________ trade is the exchange of commodities between two countries.

Q. Trade between two or more than two countries is termed as ______.

Q. Study the following graph carefully and answer the questions based on it.
The bar graph shows annual inflation in two years

2015

and

2016

of four countries

(A, B, C, D)

. Study the diagram and answer the following question.
In the year

2015

, what is the ratio of inflation in country

C

to country

A

Join BYJU'S Learning Program

if inflation is higher in country A than in Country B, and the exchange rate between the two countriesi is fixed, what is likely to happen to the trade balance between the two countries?

In this situation, the exports from country B to country A will rise and it will lead to surplus trade balance for country B. However, due to higher prices in country A, its imports will increase from country B and it will lead to deficit in trade balance for country A.

if inflation is higher in country $A$ than in Country $B$ , and the exchange rate between the two countriesi is fixed, what is likely to happen to the trade balance between the two countries?

In this situation, the exports from country $B$ to country $A$ will rise and it will lead to surplus trade balance for country $B$ . However, due to higher prices in country $A$ , its imports will increase from country $B$ and it will lead to deficit in trade balance for country $A$ .