Do changes in relative inflation rates affect the value of a nation’s currency?
What will be an ideal response?
If the inflation rate in one country rises relatively more than in another, the currency in the higher inflation country is likely to depreciate as domestic consumers seek less expensive foreign imports and increase the demand for foreign currency. At the same time, demand for domestic currency will fall since foreigners will find it less attractive to buy the country’s goods at an inflation rate. This, too, adds to the depreciation of the higher-priced country’s currency.
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If velocity is constant and equal to 5, a $20 billion shift of the LM curve to the right will be produced by a __________ in the money supply
A) $100 billion increase B) $100 billion decrease C) $4 billion increase D) $4 billion decrease
Refer to Figure 6.6. What area represents the compensation for reduced consumption that results from an increase in the price of gasoline from $1.75 to $3.00 per gallon?
A. a + b
B. a + b + e
C. c + d + e
D. d + e