If inflation is higher in the United States than in the United Kingdom:

Question

Quizplus · Accepted Answer

When inflation is higher in the United States compared to the United Kingdom, the purchasing power of the dollar falls relative to the pound. As a result, the value of the dollar depreciates and the exchange rate moves towards dollar depreciation against the pound. This means that goods in the United States become relatively more expensive than in the United Kingdom, leading to lower net exports and a potential outflow of pound to the United States. Additionally, real interest rates, which are nominal interest rates adjusted for inflation, should be lower in the United States compared to the United Kingdom due to higher inflation in the United States.

If Inflation Is Higher in the United States Than in the United