How likely is it true that a weaker dollar could lead to higher inflation in this...
How likely is it true that a weaker dollar could lead to higher inflation in this environment?
Homework Answers
A weaker dollar implies imports will become more expensive and exports will become cheaper for the other country. As a result the aggregate demand for the US economy will increase because of the components in AD equation. AD = C+ I +G+ X-M in which c is consumption, i is Investment, g is govt expenditure and X-M is net exports which is a difference in exports and imports. Thus because of the cheaper exports the aggregate demand will increase and if economy is near its full equilibrium, inflation will take place.
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