In the late 1990s, Brazil decided to reduce the value of its currency, the real, in order to boost exports and help the economy to move out of a recession. Argentina, the main trade competitor of Brazil in various products, was immediately affected by Brazil's decision, since it would:
A)increase Argentina's imports and decrease Argentina's trade deficit.
B)decrease Argentina's exports and increase Argentina's trade deficit.
C)decrease Argentina's imports and decrease Argentina's trade deficit.
D)increase Argentina's exports and decrease Argentina's trade deficit.

Question

Quizplus · Accepted Answer

When Brazil devalued its currency, Brazilian goods became cheaper on the international market, making them more competitive compared to Argentine products. This would likely decrease Argentina's exports because Argentine goods would be more expensive relative to Brazilian goods. Additionally, it would increase Argentina's trade deficit because the country would be exporting less while the value of imports would remain relatively constant or even increase due to the increased attractiveness of cheaper Brazilian goods.

In the Late 1990s, Brazil Decided to Reduce the Value