rate of inflation

• What happens to inflation when the exchange rate falls?

  Inflation increases as imports become more expensive.
• How does a fall in the exchange rate affect the prices of imports?

  It causes the prices of imports to rise.
• What is the effect of increased import prices on the Short-Run Aggregate Supply (SRAS)?

  It causes a fall in SRAS.
• What happens to the net exports section of Aggregate Demand (AD) when the exchange rate falls?

  It increases.
• How does an increase in net exports affect inflation?

  It causes inflation to rise further.
• What is the relationship between exchange rate falls and inflation?

  • A fall in the exchange rate increases import prices.
  • Higher import prices lead to increased inflation.
  • Increased net exports further contribute to rising inflation.