04-19-2007, 08:03 PM
"Transfer Payments" doesn't have any effect on price level directly but it may has effect indirectly.
"Transfer Payments" affects the Current Account of a country and Currect Account is a part of Balance of Payments (BOP). So any change in BOP affects the Exchange Rate of a country. Due to change in exchange rate, the currency depreciates/apprecaites which result into change in prices of various commodities.
e.g.the depreciation of rupee will result into increase in exchange rate and the prices of imported commodites will increase.
Can anyone explain me that
whether "Transfer Payments" have
any effect on price levels.
If they do then how they affect the price level
and if not then why not?
"Transfer Payments" affects the Current Account of a country and Currect Account is a part of Balance of Payments (BOP). So any change in BOP affects the Exchange Rate of a country. Due to change in exchange rate, the currency depreciates/apprecaites which result into change in prices of various commodities.
e.g.the depreciation of rupee will result into increase in exchange rate and the prices of imported commodites will increase.
Can anyone explain me that
whether "Transfer Payments" have
any effect on price levels.
If they do then how they affect the price level
and if not then why not?
