Other things equal, under adjustable pegged exchange rates, if the rate of inflation in the United States exceeds the rate of inflation of its trading partners
A) U.S. exports tend to rise and imports tend to fall.
B) U.S. imports tend to rise and exports tend to fall.
C) U.S. foreign exchange reserves tend to rise.
D) U.S. foreign exchange reserves remain constant.

Question

Quizplus · Accepted Answer

If the inflation rate in the United States exceeds the inflation rate of its trading partners, the goods and services produced in the United States will become more expensive relative to those produced in other countries. This will lead to a decrease in U.S. exports and an increase in U.S. imports, as foreign goods become relatively cheaper. Therefore, the correct answer is B.

Other Things Equal, Under Adjustable Pegged Exchange Rates, If the Rate