When there is an increase in price inﬂation in an economy with ﬂoating exchange rates:

Question

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When there is an increase in price inflation in a country with floating exchange rates, the value of that country's currency tends to depreciate. This makes imports more expensive and could lead to an increase in the volume of imports as the purchasing power of the currency decreases, making foreign goods relatively more expensive.

When There Is an Increase in Price Inﬂation in an Economy