- Dec 27, 2007
- In my house.
I dont think so because inflation will make exports more expensive and as a result demand for Australia's exports would decrease hence a depreciation.I said inflation leads to an increase in price of exports and domestic assets, therefore it causes demand for AUD in short term, leading to an appreciation in short term. This increases purchasing power of domestic consumers.
Am i right?
Wouldnt inflation be beneficial for the terms of trade?