what is likely to happen to the trade balance between the two countries?
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If inflation is higher in country A than in Country B, and the exchange rate between the two countries is fixed, what is likely to happen to the trade balance between the two countries?
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The exchange rate is one of the most important determinants of a country's trade level. Inflation in country A is higher than in country B. Because the exchange rate is fixed, exporting goods to nation A benefits country B. Similarly, importing items from nation B is beneficial to country A. Exporting commodities to nation B, on the other hand, would be costly for country A. As a result, compared to country B, country A will have a trade imbalance since it will import more items than it exports. Nation B will buy fewer commodities from country A than country A sells. As a result, country B has a trade surplus.
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