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

If a country experiences high inflation relative to the U.S., its exports become more expensive, resulting in a decrease in exports. Meanwhile, imports from the U.S. become cheaper, which results in an increase in imports. The increase in imports puts pressure on the currency to depreciate, resulting in a downward pressure on its equilibrium value. Therefore, option D is the correct answer.

If a Country Experiences High Inflation Relative to the U