Consider a scenario where two countries (countries A and B) are net exporters to another country (country C). Also assume that the exports from country A are perceived as normal goods by residents of country C, while the exports from country B are considered as inferior goods. All else held constant, what will happen if country C experiences a severe recession and the consumer incomes in country C experience sharp declines?
A) The recession will spread to both, country A and B through trade
B) The recession will spread to country A, but country B may even be positively impacted
C) The recession will spread to country B, but country A may remain unaffected
D) The recession will not impact countries A and B at all

Question

Quizplus · Accepted Answer

During a recession in country C, with declining consumer incomes, demand for normal goods (from country A) will decrease, potentially harming country A's exports. Conversely, demand for inferior goods (from country B) often increases when incomes fall, possibly benefiting country B's exports.

Consider a Scenario Where Two Countries (Countries a and B)