When a nation's currency depreciates, the country might
A) have an inflation rate that exceeds the inflation rate in nations with which it trades.
B) have an inflation rate below the inflation rate in nations with which it trades.
C) be responding to an increase in the demand for its currency.
D) be responding to a decrease in the domestic demand for foreign currencies.

Question

Quizplus · Accepted Answer

When a nation's currency depreciates, it often indicates that the country's inflation rate is higher than that of the nations with which it trades. This is because higher inflation reduces the purchasing power of the currency, making it less valuable compared to foreign currencies.

When a Nation's Currency Depreciates, the Country Might