Question
The value of a country's currency is likely to decline as a result of
a. higher inflation
b. lower interest rates
c. a trade surplus
d. a favorable balance of payments
a. higher inflation
b. lower interest rates
c. a trade surplus
d. a favorable balance of payments
Answers
GPT-4o mini
The value of a country's currency is likely to decline as a result of:
a. **higher inflation** - Higher inflation in a country typically erodes purchasing power, making the currency less attractive to foreign investors, which can lead to a decline in its value.
b. **lower interest rates** - Lower interest rates can lead to a decline in currency value as they make it less attractive for foreign investment.
c. **a trade surplus** - A trade surplus usually supports the currency's value since it indicates that more foreign currency is coming into the country than going out.
d. **a favorable balance of payments** - A favorable balance of payments generally strengthens a currency's value as it reflects more inflows of capital than outflows.
Therefore, both **a. higher inflation** and **b. lower interest rates** can lead to a decline in currency value, while **c. a trade surplus** and **d. a favorable balance of payments** would not.
a. **higher inflation** - Higher inflation in a country typically erodes purchasing power, making the currency less attractive to foreign investors, which can lead to a decline in its value.
b. **lower interest rates** - Lower interest rates can lead to a decline in currency value as they make it less attractive for foreign investment.
c. **a trade surplus** - A trade surplus usually supports the currency's value since it indicates that more foreign currency is coming into the country than going out.
d. **a favorable balance of payments** - A favorable balance of payments generally strengthens a currency's value as it reflects more inflows of capital than outflows.
Therefore, both **a. higher inflation** and **b. lower interest rates** can lead to a decline in currency value, while **c. a trade surplus** and **d. a favorable balance of payments** would not.