Write in short. What negative influence will inflation have on the balance of payments?

Answer 1

Inflation can have a negative influence on the balance of payments by reducing the purchasing power of a country's currency. This leads to a decrease in exports as the cost of goods and services becomes relatively more expensive for foreign buyers. It may also increase the import bill as the cost of imported goods and raw materials rises, affecting the balance of trade. Additionally, inflation can lead to a decrease in foreign investment and capital outflows as investors seek more stable economies with lower inflation rates, further impacting the balance of payments.