The Business/Economic Cycle

I have found the found the following diagram to be useful in understanding how rates of exchange (e.g. $/R), interest rates and inflation rates (PPI & CPI) are inter-linked.

To illustrate how this works, if the Dollar/Rand exchange rate changes such that it declines (downward arrow = it requires more Rands to import products), then you can see the resulting increase in Producer Price Inflation (PPI) and Consumer Price Inflation (CPI) due to the increased import costs, which then are deciding factors (among others) in what happens with Interest Rates, so that, if Interest Rates increase, Demand then decreases due to the higher cost of borrowing money (credit). As Demand reduces, so the country Gross Domestic Product (specifically imports of raw materials, finished goods and services) decreases, which improves the country Trade Balance and Balance of Payments (BoP), which in turn affects the $/R rate of exchange and the cycle continues.