Suppose Argentina has a 10% rate of inflation, while inflation is 3% in the United States. If exchange rates do not change
A) U.S. goods will have a disadvantage in the world market compared to Argentina.
B) Argentine goods will become more expensive in the United States.
C) since real exchange rates already take inflation into consideration, the inflation should have no effect on global trade.
D) goods made in Argentina will become cheaper because pesos have lost their value.

Question

Quizplus · Accepted Answer

With a higher rate of inflation in Argentina, the value of the Argentine peso will decrease relative to the US dollar. As a result, goods made in Argentina will become more expensive for American consumers, leading to a disadvantage in the US market for Argentine goods. However, this does not necessarily mean that US goods will be at a disadvantage in the world market. The impact of inflation on global trade is more complex and dependent on other factors such as interest rates, government policies, and economic growth.

Suppose Argentina Has a 10% Rate of Inflation, While Inflation