Answer to Question #118429 in Macroeconomics for Karan Bhanot

Question

India's central bank has a higher inflation target than America's central bank. Does this tend to appreciate or depreciate the Indian rupee against the American dollar? Explain

Answer 1

If India's central bank has a higher inflation target than America's central bank, then this tends to depreciate the Indian rupee against the American dollar, because the value of Indian rupee will become lower according to higher inflation.