If it is widely expected that the British economy will experience more rapid inflation than the Australian economy,the pound will depreciate against the dollar under a system of floating exchange rates.

Question

Quizplus · Accepted Answer

If inflation is expected to be higher in the UK compared to Australia, investors will demand a higher return on investments in the UK to compensate for the higher inflation rate. This will lead to a decrease in demand for the pound, causing its value to depreciate relative to the dollar under a floating exchange rate system.

If It Is Widely Expected That the British Economy Will