If the inflation rate in New Zealand were to rise relative to the inflation rate in Russia Australia, which of the following correctly explains what would happen to the demand for Australian or New Zealand goods?(1 point)

Question

Responses

Inflation in New Zealand will not change the demand for either countries' goods.
Inflation in New Zealand will not change the demand for either countries' goods.

There is no way of gauging the impact of inflation without more details regarding New Zealand's imports and exports.
There is no way of gauging the impact of inflation without more details regarding New Zealand's imports and exports.

Demand for Australian goods will rise.
Demand for Australian goods will rise.

Demand for New Zealand goods will rise.

Answer 1

If the inflation rate in New Zealand rises relative to the inflation rate in Australia, the most likely effect would be that demand for Australian goods will rise.

This is because as inflation rises in New Zealand, prices of goods and services in New Zealand would tend to increase, making New Zealand goods relatively more expensive compared to Australian goods. As a result, consumers and businesses in New Zealand might turn to Australian goods, which would then increase the demand for those goods.

So the correct response would be:

Demand for Australian goods will rise.