When a country's inflation rate is significantly above that of the international economy generally, which of the following is likely to occur:

Question

Quizplus · Accepted Answer

When a country experiences a significantly higher inflation rate than the international average, its currency tends to lose value relative to other currencies. This depreciation makes foreign goods more expensive (thus not making imports less competitive, which eliminates A), and it's unlikely the government would revalue its currency upwards in such a scenario (eliminating C). Instead, the loss in currency value can lead to capital flight, as investors seek to protect their assets by moving them to more stable currencies or economies.

When a Country's Inflation Rate Is Significantly Above That of the International