How does a low rate of inflation affect the economy?

How does trade deficit affect inflation rate of an economy?

• Answer:

  It is generally the other way round i.e. inflation causes trade deficit. Inflation results in higher production cost thus rendering exports in-competitive. Reduction in exports result in widening trade deficit. If the trade-deficit is to finance long-term infrastructure projects (instead of financing current consumption), it may eventually help in reducing inflation because of improved infrastructure leading to better economic environment. But it is difficult to predict as inflation depends on various factors like monetary policy, fiscal policy, monsoons etc.