A higher rate of inflation, relative to trading partners, has an adverse effect on the balance of payments because:
A) it leads to higher interest rates
B) it leads to a lower growth rate
C) it reduces the competitiveness of the domestic economy
D) all of the given answers

Question

Quizplus · Accepted Answer

Inflation makes domestic goods more expensive relative to foreign goods, reducing exports and increasing imports, which worsens the balance of payments by making the domestic economy less competitive internationally.

A Higher Rate of Inflation, Relative to Trading Partners, Has