If inflation is lower in Germany than in Spain (as it is...) and the exchange rate between the two countries is fixed (as it is, because of the monetary union), what is likely to happen to the balance of trade between the two countries??????
2007-12-23 11:27:07 · 3 answers · asked by Anonymous in Social Science ➔ Economics
Spain will import more German made products, because the price of Spanish made products will increase due to inflation in wages, and export less.
2007-12-23 12:57:19 · answer #1 · answered by meg 7 · 1⤊ 0⤋
German goods will become more attractive in Spain. Since Spanish goods are currently lower priced and more numerous in Germany than German goods in Spain, the two will begin to approach parity.
2007-12-24 00:08:18 · answer #2 · answered by okiknowit 7 · 0⤊ 0⤋
Not necessarily anything. Spanish inflation as a statistical average could be caused by increases in the price of local services and other non-tradeable things (such as haircuts and maid service).
2007-12-23 22:02:30 · answer #3 · answered by KevinStud99 6 · 1⤊ 0⤋