Under a system of floating exchange rates there is a general tendency for ?
Correct answer: B. the currencies of relatively high-inflation countries to depreciate
- A. exchange rates to be insensitive to the differential rates of inflation between countries
- B. the currencies of relatively high-inflation countries to depreciate
- C. the currencies of relatively high inflation countries to appreciate
- D. the currencies of relatively low inflation countries to depreciate
Explanation
With floating exchange rates, a country experiencing relatively higher inflation tends to lose international competitiveness, reducing demand for its currency. The resulting fall in its currency's value is depreciation.
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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.
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