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Inflation directly affects the value of the nation's currency. If it results from an excessive increase in the money supply, all else being equal, the price of that money (expressed in terms of foreign currencies) will fall. The link between interest rates and inflation, and between inflation and the value of currency, implies there is a relationship between real interest rates and the value of currency. Difficulty: Hard Skill: Synthesis Objective: 11-1, 11-2 AACSB: Dynamics of the global economy
22 83) Explain the belief that a persistent trade deficit is harmful to the national economy. Why was the Bretton Woods Agreement initiated and why was it terminated?