Which of the following best explains how exports and imports help the economy of a country?

• A. Exports and imports always lead to a trade deficit, which harms the economy.
• B. Both exports and imports decrease the overall standard of living in a country.
• C. Exports generate income for domestic producers, while imports provide consumers with access to a wider variety of goods and services.
• D. Exports reduce employment opportunities, while imports increase domestic production.

Answer: (C)

Verified step by step guidance

1. Understand the role of exports: Exports are goods and services produced domestically and sold to foreign countries. This generates income for domestic producers and contributes positively to the country's GDP.
2. Understand the role of imports: Imports are goods and services purchased from foreign countries. Imports provide consumers and businesses with access to a wider variety of goods and services, often at lower prices or higher quality than domestic alternatives.
3. Analyze the impact on the economy: Exports bring money into the country, supporting domestic industries and employment. Imports increase consumer choice and can improve efficiency by allowing specialization according to comparative advantage.
4. Evaluate common misconceptions: A trade deficit (when imports exceed exports) is not always harmful; it depends on the broader economic context. Also, imports do not necessarily reduce domestic production; they can complement it.
5. Conclude that the best explanation is that exports generate income for domestic producers, while imports provide consumers with access to a wider variety of goods and services, which together support economic growth and improve living standards.