CBSE 2023 Class 12 Economics Delhi Set 1

Question : 11

Total: 49

(B) Suppose, Country X, has more inflation than Country Y. Which of the following is most likely situation to happen in such a case, assuming other factors being constant?
(Choose the correct alternative)

A surplus trade balance in Country X
A deficit trade balance for Country X
A rise in exports from Country X to Country Y
A deficit trade balance for Country Y

Solution:

(b) A deficit trade balance for Country X
Explanation: Inflation in country X implies higher cost of production in the country which leads to higher prices. So Exports become dearer and imports become cheaper. It will lead to fall in exports and rise in imports. If exports are less than imports in country X, it will lead to deficit trade balance in country X.

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