Answer to Question #200565 in Macroeconomics for MDUDUZI MTSHALI

Question

is it true

A depreciation of the rand may have inflationary consequences in South Africa because it increases the costs of imported goods.

Answer 1

Solution:

Yes, it is true that rand depreciation has inflationary consequences in South Africa since it increases the costs of imported goods.

Currency depreciation is a fall in the value of a currency in terms of its exchange rate compared with other currencies. A depreciation of the rand weakens it, which hurts the local economy as it puts pressure on inflation and adds downward pressure on purchasing power thus increasing the cost of imported goods.