Suppose Sweden's inflation rate is less than that of its trading partner.Other things equal, under a floating exchange rate system Sweden would experience a/an
A) appreciation in its currency.
B) depreciation in its currency.
C) decrease in the level of its exports.
D) increase in the level of its imports.

Question

Quizplus · Accepted Answer

If Sweden's inflation rate is less than its trading partner, its currency would appreciate under a floating exchange rate system because there would be less pressure for it to depreciate due to its lower inflation rate. This would make its exports more expensive and its imports cheaper, potentially leading to a decrease in exports and an increase in imports.

Suppose Sweden's Inflation Rate Is Less Than That of Its