What effects do relative inflation rates have on relative interest rates?

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What effects do relative inflation rates have on relative interest rates?

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What effects do relative inflation rates have on relative interest rates?

Explanation & AnswerSolution by a verified expert

Explanation

Interest rates largely depend on inflation. To bring inflation down, governments will reduce the money supply by increasing the real interest rates. So a high relative inflation rate means high relative interest rates,and a low relative inflation means low relative interest rates.

Verified Answer

High domestic inflation means high domestic interest rate; low domestic inflation means low domestic interest rates.

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