3.1 \"Balance of trade is the difference between the value of a country's exports and the value of its imports. Ination is likely to worsen the balance of trade. If a country suffers relatively high ination, its exports will become less competitive in world markets. At the same time imports will become relatively cheaper than home-produced goods. Thus exports will decrease and imports will rise, deteriorating the balance of trade." In terms of the above statement, answer the following questions: 3.1.1 Evaluate the effect on aggregate demand in terms of Keynesian theory, holding all other variables and assumptions constant. In other words. examine the effect of the above statement on the ONE most relevant component that makes up aggregate demand. (15) 3.1.2 Argue the point that a trade decit reversal is typically driven by a signicant real exchange rate depreciation