In the economy in the above diagram, international trade:
A)does not occur.
B)has a contractionary effect on GDP.
C)has an expansionary effect on GDP.
D)has no impact on GDP.

Question

In the economy in the above diagram, international trade:
A)does not occur. 
B)has a contractionary effect on GDP. 
C)has an expansionary effect on GDP. 
D)has no impact on GDP.

Quizplus · Accepted Answer

International trade has an expansionary effect on GDP as it allows countries to specialize in producing goods that they are relatively efficient in, leading to an increase in efficiency and production levels. This, in turn, increases GDP. Therefore, option C is the correct answer.

In the Economy in the Above Diagram, International Trade