If Slovenia were a large country in world trade, then if it instituted a large set of subsidies for its exports, this must
A) have no effect on its terms of trade.
B) harm world terms of trade.
C) harm its terms of trade.
D) decrease its marginal propensity to consume.
E) improve its terms of trade.

Question

Quizplus · Accepted Answer

When a country provides subsidies for its exports, it reduces the cost of producing those goods and makes them more competitive in world markets. As a result, the demand for those goods may increase, leading to an increase in their price. This, in turn, can harm the terms of trade for the country providing the subsidies. Therefore, if Slovenia were a large country in world trade and provided a large set of subsidies for its exports, it is likely to harm its terms of trade.

If Slovenia Were a Large Country in World Trade, Then