If one country has a lower inflation rate than other countries, its
A) currency tends to appreciate.
B) currency tends to depreciate.
C) real interest rate will be higher than in other countries.
D) nominal interest rate will be higher than in other countries.

Question

Quizplus · Accepted Answer

When a country has a lower inflation rate than other countries, its currency tends to appreciate because its purchasing power increases relative to other currencies. This means that goods and services in the country become relatively cheaper, leading to increased demand for its currency. Additionally, investors may be more inclined to hold assets denominated in the currency with lower inflation expectations, which further drives up demand and the currency's value.

If One Country Has a Lower Inflation Rate Than Other