When income levels in the rest of the world increase, what is the effect on the home TB?
A) It decreases because of expenditure switching.
B) It decreases because of an increase in imports.
C) It increases because of an increase in exports.
D) It increases because of expenditure switching.

Question

Quizplus · Accepted Answer

When income levels in the rest of the world increase, countries with higher incomes tend to import more goods and services. This leads to an increase in exports from the home country, improving the home trade balance (TB).

When Income Levels in the Rest of the World Increase