If one country, with floating exchange rates, has higher inflation than its competitors we would expect its exchange rate to ?
Correct answer: B. depreciate
- A. appreciate
- B. depreciate
- C. revalue
- D. be in short supply
Explanation
Higher domestic inflation makes the country’s goods relatively expensive, reducing demand for its currency and increasing demand for foreign currency. Under floating rates, this causes the domestic currency to depreciate rather than be revalued, which applies to fixed-rate systems.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
In the ERM, each country fixed participant Collectively the group ________ against the rest of the world?
Economic growth is important because ?
Identify below what is NOT considered to be a cause of economic growth ?
Under floating exchange rates, expectations of higher interest rates are likely to cause an ____ of the exchange rate?
A fixed exchange rate, plus perfect capital mobility ________ the scope for monetary policy ?
With fixed exchange rates and no private currency flows, when the central bank buys domestic currency the domestic money supply is ?