Can higher inflation lead to currency Appreciation? Justify your answer.

Can higher inflation lead to currency Appreciation? Justify your answer.

 

Answer:

Generally, when inflation rises I.e. When prices rise, the value of money decreases. You can’t afford same number of units that you could earlier from the same amount of money. In such cases, currency depreciates.

But in some countries, government tries to alleviate the effect of price increase by appreciating the currency. Because of this demand for wages also increases. And when people had more money they demanded more and consequently prices increased.

Asked on February 14, 2018 in economics.
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