Suppose two countries, A and B, are trading with each other. Suppose also that the rate of inflation in B is higher than in A. There will be

Question

Quizplus · Accepted Answer

Higher inflation in Country B makes its goods more expensive relative to Country A's goods, leading to a decrease in demand for B's goods and an increase in demand for A's goods. This results in an increase in the supply of Country B's currency in the foreign-exchange market as B's residents exchange their currency to buy more of A's goods.

Suppose Two Countries, a and B, Are Trading with Each