Figure 20-4

-Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?
A)1
B)2
C)3

Question

Figure 20-4
 
-Which of the situations illustrated in Figure 20-4 shows a currency depreciation leading to inflation?
A)1 
B)2 
C)3

Quizplus · Accepted Answer

In option 2, the currency depreciation leads to an increase in the price of imported goods, which causes an increase in the general price level and, therefore, inflation. Option 1 shows a currency appreciation leading to a decrease in the price of imported goods, which could lead to deflation. Option 3 shows a currency appreciation leading to a decrease in the price of imported goods but no significant impact on inflation. Option 4 shows a currency depreciation leading to an increase in exports and a decrease in the current account deficit but no significant impact on inflation.

Figure 20-4 -Which of the Situations Illustrated in Figure 20-4 Shows a Figure