ECONOMICS
BALANCE OF TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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inflation will cause the U.S. dollar to depreciate.
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inflation will cause the U.S. dollar to appreciate.
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deflation will cause the U.S. dollar to appreciate.
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deflation will cause the U.S. dollar to depreciate.
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Detailed explanation-1: -An increase in the supply of money works both through lowering interest rates, which spurs investment, and through putting more money in the hands of consumers, making them feel wealthier, and thus stimulating spending.
Detailed explanation-2: -Increasing interest rates does not increase a nation’s money supply because the two have an inverse relationship. Higher interest rates translate to a lower supply of money in the economy.
Detailed explanation-3: -Long-lasting episodes of high inflation are often the result of lax monetary policy. If the money supply grows too big relative to the size of an economy, the unit value of the currency diminishes; in other words, its purchasing power falls and prices rise.