AP Macroeconomics Question 440: Answer and Explanation
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3. Which of the following might worsen a nation's trade deficit?
- A. Lower wages relative to other nations.
- B. Lower taxes on corporate profits relative to other nations.
- C. A higher interest rate on financial assets relative to other nations.
- D. A higher rate of inflation relative to other nations.
- E. Other nations remove tariffs and quotas on foreign imports.
Correct Answer: D
D-Higher inflation to other nations causes goods to be more expensive relative to those produced abroad, causing a drop in net exports.