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Question
Statistics
Posted 10 months ago
Ghana's currency is the cedi, and assume Ghana has no currency controls. A change in the economy has led to the shift from point to point . India is one of Ghana's top trading partners, and India's currency is the rupee.
What's the impact of this economic change on the values of the cedi and rupee?
Choose 1 answer:
(A) cedi appreciates; rupee depreciates
(B) cedi appreciates; rupee appreciates
(c) cedi is unaffected; rupee appreciates
(D) cedi depreciates; rupee appreciates
(E) cedi depreciates; rupee depreciates
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Interpret the graph: The shift from point to point on the SRPC indicates an increase in inflation from 9% to 11% and a decrease in unemployment
step 2
Analyze the impact on the cedi: Higher inflation typically leads to a depreciation of the currency because it reduces purchasing power. Since Ghana has no currency controls, the cedi is likely to depreciate
step 3
Consider the impact on the rupee: If Ghana is one of India's top trading partners and the cedi depreciates, Indian exports to Ghana could become more expensive in terms of cedis, potentially reducing demand. This could lead to the rupee appreciating relative to the cedi
step 4
Combine the effects: The combined effect of steps 2 and 3 suggests that the cedi would depreciate and the rupee would appreciate
Answer
D
Key Concept
Currency value changes due to inflation
Explanation
An increase in inflation typically leads to currency depreciation, and trade relationships can influence the relative appreciation or depreciation of trading partners' currencies.
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