Suppose Sweden's inflation rate is less than that of its trading partner.Under a floating exchange rate system,Sweden would experience a:
A) Appreciation in its currency
B) Depreciation in its currency
C) Fall in the level of its exports
D) Rise in the level of its imports

Question

Quizplus · Accepted Answer

As Sweden's inflation rate is less than that of its trading partner, the demand for its goods will increase as they become cheaper relative to the trading partner's goods. This increased demand will lead to an increase in demand for the Swedish Krona, causing its value to appreciate.

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