Countries with lower inflation rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates.

Countries with lower inflation rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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Countries with lower inflation rates will have lower interest rates.
Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid
or invalid.
O The statement is invalid, because the nominal interest rate is independent of the inflation rate.
O The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would
result in lower interest rates.
If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be
from currency appreciation.
The currency of a country with a lower inflation rate than the U.S. inflation rate will
over time against the dollar.
by the losses

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