Consider the following statement: Countries with lower inflation rates will have

Question

Consider the following statement: Countries with lower inflation rates will have lower interest rates bhesrstes and exchange rates. denty wiether 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 by the losses from currency appreciation The currency of a country with a higher inflation rate than Japan's inflation rate will the yen. over time against

Explanation / Answer

The statement is valid, because the nominal interest rate is the sum of real interest rate plus inflation, so lower inflation would result in lower interest rates. Offset by losses from currency appreciation. Depreciate over time against the yen 175.23*1,9734= $ 345.80 The demand for gaming console would decrease in the United States.

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