Q. At the conclusion of World War I, Germany, as a punishment, was obliged to take a large transfer to France in the form of reparations. Is it possible that the actual reparations can have improved Germany's economic welfare?
Answer: Such a result isn't likely though theoretically, if France's income flexibility of demand for Germany's exports was higher than Germany's income elasticity of demand for its own exportable after that the real income transfer associated with these reparations may possibly have improved Germany's terms of trade and improved its balance of payments therefore helping Germany in manner unanticipated in the Treaty of Verssaille.