1. Why doesn’t the fact that the “inflation solution” is only a temporary solution stop many...

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1. Why doesn’t the fact that the “inflation solution” is only a temporary solution stop many developing countries from using it?

2. What is conditionality, and how does it relate to the balance of payments constraint?

Komalavalli · Accepted Answer

Q1
When inflation happens, prices rise and money becomes less valuable in the economy than it used to be. With this money, you can no longer live as you used to. When a currency depreciates, the exchange rate for other currencies also depreciates. However, whether other countries have lower inflation rates than ours is an important factor. If they grow faster than your country, your currency may appreciate, as basic purchasing power parity suggests. In developing nation,

1. Why doesn’t the fact that the “inflation solution” is only a temporary solution stop many developing countries from using it? 2. What is conditionality, and how does it relate to the balance of...

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