The correct option is, (A) The value of the country's currency decreases relative to that of other countries.
- Imports and Export affect the GDP of a country.
- If the country decreases its imports it is still beneficial if the value of the home currency grows.
How can a country decrease imports?
How to Decrease Imports/Increase Exports:
- Taxes and quotas. Governments decrease excessive import activity by imposing tariffs and quotas on imports.
- Subsidies. Governments provide subsidies to domestic businesses in order to reduce their business costs.
- Trade agreements.
- Currency devaluation.
How does a decrease in import price affect the terms of trade?
- A fall in the exchange rate should reduce the terms of trade.
- This is because a decline in the exchange rate will make exports cheaper.
- An appreciation in the exchange rate should improve the terms of trade because exports will rise in price and imports become cheaper.
How do imports and export influence the economy?
- The import and export are concerned with the inflow and outflow of cash which directly affects the GDP, the exchange rate i.e. value of the home currency in the foreign trade exchange, the interest rate, and the inflation rate.
- If the country increases its import(outflow of money) without increasing the amount of money to be spent so if the value of the home currency increases as compared to other countries it will be required to pay less amount i.e. the outflow of cash is there but at the reduced rate.
Learn more about the influence of imports and export on the economy here:
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