Economics AQA unit 2 tomorrow!

Do we have to know about Price Deflation?

yes - but not much more than it happens and its bad.

But can someone help in regards to inflation exchnage rate relationship.

Guys what are good websites to find multiple choice practice?

yes - but not much more than it happens and its bad.

If its high inflation relative to main trading partners, then yes thats effectively appreciation of domestic currency.

When its lower inflation relative to trading partners, thats effectively depreciation.

Hi I need help to know what to put in my conclusion, what points should I always make for example the opportunity cost and ...


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Not sure this is correct. If domestic inflation is high relative to our trading partners then surely the value of our currency in real terms will have fallen more than the value of theirs, making our currency worth less comparatively, hence representing a depreciation of domestic currency, not appreciation?

No..
I'm right. I don't understand what you're saying.

I hope you're not trying to prove me wrong. It literally says

"The balance of payments may deteriorate because domestic inflation stimulates import spending, given that imports appear relatively cheaper, and dampens export sales, as exports appear more expensive abroad."

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).

do you understand what 'effectively' means? Or am i being trolled right now xddd