If a country experiences high inflation relative to the U.S., its exports to the U.S. should ____, its imports should ____, and there is ____ pressure on its currency's equilibrium value.
A) decrease; increase; upward
B) decrease; decrease; upward
C) increase; decrease; downward
D) decrease; increase; downward
E) increase; decrease; upward

Question

Quizplus · Accepted Answer

When a country experiences high inflation relative to the U.S., its exports become more expensive, making them less attractive to U.S. consumers, leading to a decrease in exports. On the other hand, the country's imports become cheaper for U.S. consumers, leading to an increase in imports. As a result, there is downward pressure on its currency's equilibrium value, as there is an excess supply of the country's currency in the foreign exchange market.

If a Country Experiences High Inflation Relative to the U