In a small island economy that relies on imports for most raw materials and faces price-elastic demand for its exports, what is the most likely impact of an appreciation of its currency on the balance of payments on the current account and on the rate of inflation?
- Abalance of payments on the current account improves; rate of inflation falls
- Bbalance of payments on the current account improves; rate of inflation rises
- Cbalance of payments on the current account worsens; rate of inflation falls
- Dbalance of payments on the current account worsens; rate of inflation rises