Under what condition does the trade balance deteriorate in relation to income compared to absorption?

Multiple choice question for Exchange-Rate Adjustments And The Balance of. Select an option, then review the explanation below.

Explanation

The trade balance worsens only if income decreases relative to absorption. If income falls, the ability to finance imports diminishes, leading to a worsening trade balance.

Practice related questions from the same subject.

1.What does empirical research suggest about the impact of currency depreciation on a country's trade balance?
2.What term describes how quickly domestic and foreign prices respond to a devaluation in the short term?
3.The shorter the ______ period for pass-through, the ______ the beneficial balance of trade effects on the volume of goods exchanged will be observed.
4.If the United Kingdom devalues the pound and both exports and imports are measured in pounds, what happens to the UK's trade balance during the currency adjustment period?
5.When export agreements are denominated in foreign currency and import agreements are in domestic currency, what is the impact of a dollar depreciation during the contract period?

Under what condition does the trade balance deteriorate in relation to income compared to absorption?

Explanation

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