The economic situation in Europe has forced central banks to take unprecedented measures: “Sweden’s central bank has taken its main policy rate deeper into negative and uncharted territory, citing...

The economic situation in Europe has forced central banks to take unprecedented measures: “Sweden’s central bank has taken its main policy rate deeper into negative and uncharted territory, citing growing economic uncertainty and worries about Greece. In the latest salvo in a global currency war, the Riksbank cut its main interest rate by 10 basis points to minus 0.35 percent. Monetary policy has come under increasing scrutiny in recent years as the Riksbank tries to stop deflation taking hold in Sweden. The central bank cited worries that an unexpectedly strong Swedish krona could hamper efforts to boost inflation through a weaker currency.” a. Why is the Riksbank expecting the currency (Krona) to depreciate? b. Explain why a weaker currency might help the Riksbak to increase inflation in Sweden.