The annual rate of inflation in an economy rises from 1 per cent to 4 per cent, while the annual rate of inflation of its main trading partners remains stable at 1 per cent.
As a result, all other things being equal, which of the following is most likely to occur in the long term for this economy?
Domestic exports will increase.
The current account balance of payments will improve.
Domestic products will become more price competitive.
The volume of imports from trading partners will increase.
