do you understand what 'effectively' means? Or am i being trolled right now xddd(Original post by DanCampbell1998)
You are incorrect - if inflation is higher in a country compared to the rest of the world, its exchange rate will deteriorate. Even though imports increase when domestic inflation increases, it's not because of an increased exchange rate: it's because prices are higher domestically. Even though imports will increase if the exchange rate increases, an increase in imports doesn't necessarily mean that the exchange rate has increased, as many factors come into play when imports vary.
Additionally, the increase in imports following the inflation of domestic prices depreciates the currency even further, as many people are competing to "sell off" or swap their domestic currency for foreign currencies, increasing the supply of the domestic currency and lowering the value of it.
Nowhere in the article that you shared with us does it say that domestic inflation increases the exchange rate, it only says that imports will increase when this occurs. As I said, an increase in demand for imports does not necessarily mean that the domestic currency has appreciated (which in the case of inflation, it has done the opposite).
Economics AQA unit 2 tomorrow!
|Would YOU be put off a uni with a high crime rate? First 50 to have their say get a £5 Amazon voucher!||27-10-2016|