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From course:

Economics A Level

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Question:

What is the Conflict between Inflation and the Equilibrium of the Balance of Payments

Author: go kys



Answer:

-This can be Compatible or Not at times -Inflation being low means Prices rise Slowly. If they rise more Slowly than other Nations, then Exports to other Nations will Increase and Imports Decrease. This is Good -But if the Low Inflation is done by High % Rates then Foreign Investment will be Encouraged. This makes the Currency Stronger [Demand Increases] therefore making Exports Expensive and Imports Cheaper. This Worsens the Balance of Payments [ish as FDI is part of Balance of Payments]


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go kys
go kys