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.
310 exam-style questions on AQA A Level Economics 2.6 The international economy (A-level only), covering 2.6.1 Globalisation, 2.6.2 Trade, 2.6.3 The balance of payments, 2.6.4 Exchange rate systems, and 2.6.5 Economic growth and development. Each one has a worked solution and a mark scheme showing where the marks go.