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Interest rates

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA BT – FIA FBT › Interest rates

  • This topic has 2 replies, 2 voices, and was last updated 9 years ago by eaindrayhlaing.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • September 28, 2015 at 12:00 pm #273988
    eaindrayhlaing
    Member
    • Topics: 11
    • Replies: 12
    • ☆

    Which of the following effect is likely to be caused by an increase in interest rates?

    (i) Decrease inflation on imports
    (ii) Increase demand pull inflation
    (iii) Increase inflation on imports
    (iv) Decrease demand pull inflation

    I understand the relation between increase in interest rates and decrease in demand pull inflation but i don’t understand why it effect the decrease inflation on imports. What is the relation between between them.

    Thanks in advance, Sir.

    September 28, 2015 at 5:53 pm #274015
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10591
    • ☆☆☆☆☆

    If interest rates go up in a country ots currency strengthens because lots of poeple buy into it the get the good interest rate.

    If your currency strengtherns, imports become cheaper. Therefore (i) above applies.

    September 29, 2015 at 1:07 am #274041
    eaindrayhlaing
    Member
    • Topics: 11
    • Replies: 12
    • ☆

    Thank you sir, it will be a great help in my exam today.:)

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