Respuesta :
Answer:
The exchange rate effect
Explanation:
Exchange rate is the rate at which one currency is exchanged for another currency.
Assume that price level in country A increases by 10 units while the price level remains the same in country B.
If corn was 20 units before in country A, it would now cost 30 units while the price of corn remains unchanged in country B at 10 units. Corn is now more expensive in country A ,so people in country A would import corn from country B. This is the exchange rate effect
I hope my answer helps you
Answer:
the exchange rate effect
Explanation:
Since high inflation is not very common in the US, people rarely consider how negative it can be. But all we need to do is go back a few years to 2006 and 2007, when sustained high inflation and bad banking practices made the economic system to fail. The problem with inflation is that it makes things more expensive, while most salaries remain relatively stable. Generally most raises are between 2.5-3% per year, but if inflation is higher than that, you are actually losing real money.
High inflation results in more expensive products, at least those produced domestically, But high inflation makes imported goods cheaper, because not every country has high inflation. Countries with low inflation benefit form others with high inflation. E.g. a pickup truck made in the US increases its price by 5% during a year, but a similar pickup truck made in Mexico only increases its price by 2%. High inflation will create a gap between domestic products and imported products.
The gap might not seem large, but if you add that effect to lower foreign manufacturing costs, then the difference is very large. And a 2 or 3% decrease in sales here and there, end up adding a lot of lost sales. This happens until imports increase so much that foreign currencies appreciate and the equation balances again.
