Assume that Switzerland and Britain have flexible exchange rates.Other things unchanged, if the price level is stable in Britain but Switzerland experiences rapid inflation:
A)gold bullion will flow into Switzerland.
B)the Swiss franc will depreciate.
C)the British pound will depreciate.
D)the Swiss franc will appreciate.

Question

Quizplus · Accepted Answer

When Switzerland experiences rapid inflation while Britain's price level is stable, the Swiss franc will depreciate because the purchasing power of the franc decreases, making Swiss goods more expensive relative to British goods. This leads to a decrease in demand for the franc and an increase in demand for the pound.

Assume That Switzerland and Britain Have Flexible Exchange Rates