In the above private open economy, international trade:
A)is inflationary.
B)is a source of additional jobs for domestic workers.
C)has no effect on GDP.
D)has a contractionary effect on GDP.

Question

In the above private open economy, international trade:
A)is inflationary. 
B)is a source of additional jobs for domestic workers. 
C)has no effect on GDP. 
D)has a contractionary effect on GDP.

Quizplus · Accepted Answer

International trade has a contractionary effect on GDP in a private open economy, as imports increase and exports decrease, leading to a decrease in net exports and thus a decrease in GDP.

In the Above Private Open Economy, International Trade