Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It tends to improve the trade balance by making exports cheaper and imports more expensive.
B
It usually worsens the trade balance by increasing the cost of exports.
C
It has no effect on the trade balance as import/export ratios remain unchanged.
D
It leads to an equal increase in both imports and exports, leaving the trade balance unaffected.
Understanding the Answer
Let's break down why this is correct
Answer
When a country's currency significantly depreciates, it means that its money is worth less compared to other countries' currencies. This makes exports cheaper for foreign buyers, which can increase the amount of goods and services the country sells abroad. At the same time, imports become more expensive for the country, leading to a decrease in the quantity of goods and services it buys from other countries. For example, if a country’s currency falls in value, a car that costs $20,000 in the U. S.
Detailed Explanation
When a country's currency loses value, its goods become cheaper for other countries. Other options are incorrect because This answer suggests that exports cost more, which is not true when currency depreciates; This answer assumes nothing changes, but that's not how currency works.
Key Concepts
Impact of exchange rates on trade
Import/export ratio
Economic indicators
Topic
Currency Exchange and Trade Balance
Difficulty
hard level question
Cognitive Level
understand
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