If the Nation of Alphania Enjoys an Increase in Consumption

question 28

Multiple Choice

If the nation of Alphania enjoys an increase in consumption as a result of specialization and trade, then it can be concluded that:

• A) it has no trade barriers in any sector.
• B) it has a comparative advantage in the production of all goods.
• C) the country has a high level of inflation.
• D) it has experienced the gains from trade.

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Definitions:

Real Exchange Rate

An exchange rate that has been adjusted for the relative purchasing power of the two currencies, reflecting the quantity of goods and services one currency can buy in another country.

Domestic Prices

The prices of goods and services within a country's borders, influenced by local factors like production costs, taxes, and supply and demand.

Trade Deficit

A situation in which a country's imports exceed its exports, leading to more money flowing out of the country than coming in.

Net Exports

The difference between what a country sells to others and what it buys, represented by exports minus imports.